Elam v. Elam

• Decision Date: 02 September 1982
• Docket Number: No. 48219-5,48219-5
• Citation: 650 P.2d 213,97 Wn.2d 811
• Parties: In the Matter of the Marriage of Norma Iris ELAM, Respondent, and Stanley Patrick ELAM, Appellant.
• Court: Washington Supreme Court

Page 811

97 Wn.2d 811

650 P.2d 213

In the Matter of the Marriage of Norma Iris ELAM, Respondent and Stanley Patrick ELAM, Appellant.

No. 48219-5.

Supreme Court of Washington, En Banc.

Sept. 2, 1982.

Clinton J. Henderson, Clarkston, for appellant.

Jay R. Jones, Clarkston, for respondent.

DOLLIVER, Justice.

This case was certified from Division Three of the Court of Appeals pursuant to RCW 2.06.030(d) on the following question:

To what extent, if any, is there a community interest in the increase in value of separate property due to inflation, where community funds and labor were used to improve the property?

The marriage between Stanley and Norma Elam lasted from April 1972 until its dissolution in October 1979. Mr. Elam entered the marriage without any discernible assets, while Mrs. Elam brought a home purchased in 1967 for $7,500 and a bank balance of $10,000.

At the time of the dissolution, the main point of contention was the treatment of Mrs. Elam's house. The court set the value of the house at $34,000, determined it was Mrs. Elam's separate property and that $9,000 had been contributed as community funds and labor for the purpose of improving the home. Mr. Elam was awarded $5,000 as his share of the community effort. Parenthetically, it should be noted that the trial court erroneously set the amount of postnuptial contribution at $9,000. The record shows $3,500 in improvements were made by Mr. Elam prior to marriage so that the amount of community improvements was $5,500.

Mr. Elam appeals, claiming that in the absence of a demonstration by Mrs. Elam that the increased value of the house was due entirely to inflation, market conditions or other separate activity, the entire increase should have been found to be community property. If this had been done, he claims the difference between $7,500 and $34,000 or $26,500 should have been divided equally between the parties.

The Court of Appeals asks us to review several decisions which appear to be in conflict: In re Marriage of Harshman, 18 Wash.App. 116, 567 P.2d 667 (1977) (Division One); McCoy v. Ware, 25 Wash.App. 648, 608 P.2d 1268 (1980) (Division Three); and In re Marriage of Johnson, 28 Wash.App. 574, 625 P.2d 720 (1981) (Division Two).

The starting point in understanding these cases is Guye v. Guye, 63 Wash. 340, 349, 115 P. 731 (1911). There the court said:

We think the statute meant to declare that a specific article of personal property, or a specific tract of real property, once the separate property of one of the spouses, no matter how it may fluctuate in value, remains so, unless, by the voluntary act of the spouse owning it, its nature is changed.

Where the property in question was initially the separate property of one of the spouses and no contribution of community funds is made by either spouse, the answer is simple. The increase in value due to inflation would be the separate property of the owning spouse. See RCW 26.16.010, .020. See In re Estate of Witte, 21 Wash.2d 112, 124-25, 150 P.2d 595 (1944).

The problem arises when the community has contributed time or money for the betterment of the separate property. See D. King, The Challenge of Apportionment, 37 Wash.L.Rev. 483 (1962). This question was addressed in Hamlin v Merlino, 44 Wash.2d 851, 857, 272 P.2d 125 (1954), where the court citing Guye v. Guye, supra, stated:

" 'Moreover, the right of the spouses in their separate property is as sacred as is the right in their community property, and when it is once made to appear that property was once of a separate character, it will be presumed that it maintains that character until some direct and positive evidence to the contrary is made to appear.' (Italics ours.)"

Hamlin v. Merlino, supra at 857-58, 272 P.2d 125.

The court continued:

(W)here the separate property in question is real estate or an unincorporated business with which personal services ostensibly belonging to the community have been combined, the rule is that all the income or increase will be considered as community property in the absence of a contemporaneous segregation of the income between the community and the separate estates.

Hamlin v. Merlino, supra at 858, 272 P.2d 125.

It is this statement which appears to have been misinterpreted in recent cases. In affirming the principle in Guye that the separate property of a spouse remains separate property despite fluctuations in value, the court appears to suggest the rule might be different where the increase in value of the separate property was the result of something other than "natural enhancement" of the property. It discussed the rule to be applied where "separate property, owned at the time of marriage, is combined with community labor of the husband to create profits or to increase the value of the original separate property," Hamlin, at 858, 272 P.2d 125, and expressed the view that in such a case an increase in value is presumptively community property in the absence of contemporaneous segregation.

The court in In re Marriage of Harshman, supra, commenting on Hamlin v. Merlino, supra, stated:

We do not agree that contemporaneous segregation is the only way to maintain and prove the separate status of income. As footnoted in King, The Challenge of Apportionment, 37 Wash.L.Rev. 483, 493 (1962), this concept was stated as dictum. The presumption may be overcome by clear and satisfactory evidence tracing the property to its origin or source as separate property. An owner of separate property should not be prohibited from proving the source of an increase in value of the separate estate because contemporaneous segregation did not take place if other admissible evidence is available to surmount the presumption.... Upon remand, the husband has the burden of establishing that the increase in the value of the property was due to the rents, issues, and profits of the separate estate as opposed to community labor. If the husband is unable to sustain this burden, the entire increase in value is presumed to be community, and the community would be entitled to an equitable lien or right of reimbursement as to the increased value.

(Citations omitted.) In re Marriage of Harshman, supra at 125-26, 567 P.2d 667.

Subsequent to Harshman, Division Three in McCoy v. Ware, supra at 650, 608 P.2d 1268, held:

The rule set forth in In re Marriage of Harshman, 18 Wash.App. 116, 567 P.2d 667 (1977), provides the answer (as to who has the burden of establishing the cause of the increase in the value of the home). Where the separate property in question is real estate on which personal services or funds of the community have been used to effectuate improvements, the resulting increase in value of the real estate is presumed to be community property to the extent that the community has a lien against the property to secure reimbursement for the increased value. This presumption, however, may be overcome by clear and satisfactory evidence that...