In re Marriage of Sherman

• Decision Date: 20 July 2005
• Docket Number: No. B173276.,B173276.
• Parties: In re MARRIAGE OF Melanie and Richard SHERMAN. Melanie Sherman, Appellant, v. Richard Sherman, Respondent.
• Court: California Court of Appeals Court of Appeals

35 Cal.Rptr.3d 137

133 Cal.App.4th 795

In re MARRIAGE OF Melanie and Richard SHERMAN.

Melanie Sherman, Appellant, v. Richard Sherman, Respondent.

No. B173276.

Court of Appeal, Second District, Division 7.

July 20, 2005.

Trope and Trope, Thomas Paine Dunlap and Sorrell Trope, Los Angeles, for Appellant.

Wasser, Cooperman & Carter, Dennis M. Wasser, John A. Foley and Michael Brourman, Los Angeles, for Respondent.

JOHNSON, J.

Melanie Sherman appeals from a further judgment on reserved issues in a marital dissolution action. She contends the trial court incorrectly calculated the community property interest in a residence Richard Sherman purchased before the marriage because the court valued the residence as of the date of the parties' separation instead of the date of trial. She also contends the trial court erred in rejecting her claim for reimbursement to the community for support payments Richard made with community property funds to his former spouse and their children. We agree with Melanie's position on the first issue, but disagree with her as to the second. Accordingly, we affirm the judgment in part, reverse it in part and remand the matter to the trial court with directions.

FACTS AND PROCEEDINGS BELOW

The Shermans married in July 1995 and separated in October 2001. They had two children together. During the marriage, the Shermans lived in a residence in Pacific Palisades which Richard had purchased in November 1993 for $1,226,599.50. The Shermans used $99,475 in community property funds to pay down the mortgage on the residence. In August 1998, Richard refinanced the residence and withdrew $495,403. He used $329,191 of these proceeds to make improvements to the property. When the parties separated, Melanie and the children moved out of this residence. The parties stipulated the fair market value of the residence was $3,500,000 at the time of separation and $3,950,000 at the time of trial.

Richard was married and divorced before and had children from the prior relationship. During his marriage to Melanie, Richard paid spousal support to his ex-wife in the amount of $688,804.42 and child support in the amount of $802,925.08. For the most part, he used his salary to make these support payments. Richard was the chief financial officer of The David Geffen Company. He earned about $1 million a year during the time he was married to Melanie.

In October 2001, Melanie filed for divorce. In April 2003, the trial court entered a judgment of dissolution as to status only and reserved jurisdiction over all other issues, including division of property. The matter went to trial in July 2003. The parties disputed the value of the community property interest in the residence. The parties also disputed the validity of Melanie's claim for reimbursement to the community from Richard's separate property for the support payments Richard made to his ex-wife and children. Richard asked the trial court to deny Melanie's claim for reimbursement, arguing he had no other source of income available to make the support payments aside from income deposited in community property accounts.

The trial court issued a statement of decision on the reserved issues. The court concluded the community was entitled to a pro tanto interest in Richard's separate property residence. In setting the value of this interest, the trial court stated: "The major component of the pro tanto community interest in the residence was from the August 1998 improvements. In such a situation, Bono v. Clark[¹] . . . holds that the value of the property as of the date of separation, rather than as of the date of trial, should be utilized in order to determine the pro tanto community interest in the residence. In the within matter, the parties have stipulated that the community interest pursuant to a Bono v. Clark analysis would be $680,759." The trial court rejected Melanie's reimbursement claim, concluding it was barred by the applicable limitations period set forth in Family Code² section 920 because more than three years had elapsed since Melanie had actual knowledge Richard was using community funds to pay his spousal and child support obligations.

The trial court entered judgment in accordance with the above conclusions set forth in its statement of decision. The court ordered Richard to pay Melanie $15,000 a month in spousal support and $10,038 per month in child support.

DISCUSSION

I. THE TRIAL COURT ERRED IN VALUING THE COMMUNITY PROPERTY INTEREST IN THE RESIDENCE.

In In re Marriage of Moore, our Supreme Court concluded, "Where community funds are used to make [loan] payments on property purchased by one of the spouses before marriage `the rule developed through decisions in California gives to the community a pro tanto community property interest in such property. . . .'"³ Courts have applied this so-called Moore/Marsden rule not only where the parties use community funds to pay down a mortgage, but also where they use community funds to make improvements to a residence purchased by one of the parties before marriage and those improvements increase the property's equity value.⁴

The disputed issue in this case is not whether the community acquired an interest in the Pacific Palisades residence Richard purchased before the marriage. The parties agree it did by making mortgage payments and paying for improvements to the property. The issue here is whether the proper date of valuation of the community property interest in the residence is the date of the parties' separation or the date of trial. The trial court used the date of separation, which Richard argues is the appropriate date. Melanie claims the court erred in not using the date of trial. We agree with Melanie.

Section 2552, subdivision (a) provides: "For the purpose of division of the community estate upon dissolution of marriage or legal separation of the parties, except as provided in subdivision (b), the court shall value the assets and liabilities as near as practicable to the time of trial."⁵ Subdivision (b) of this section states: "Upon 30 days' notice by the moving party to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal division of the community estate of the parties in an equitable manner." The record does not indicate either Richard or the trial court gave much thought (if any at all) to section 2552 in connection with the valuation of the community property interest in the residence. Richard continues to ignore this statute on appeal despite Melanie's numerous references to it in her opening appellate brief.

Applying the principle set forth in section 2552, California appellate courts have concluded the proper valuation date for a community property residence for purposes of a dissolution proceeding is the date of trial unless there is some reason which renders this result inequitable.⁶ A date of separation valuation of property is appropriate "`when the hard work and actions of one spouse alone and after separation, greatly increases the "community" estate which then must be divided with the other spouse.' [Citation.]"⁷ "On the other hand, when an asset increases in value from nonpersonal factors such as inflation or market fluctuations, generally it is fair that both parties share in that increased value."⁸

We can think of no reason why this analysis would be inapplicable to a community property interest in a separate property residence like the one at issue here. There is nothing in the record to suggest the $450,000 increase in the value of the residence between the time of separation and trial had anything to do with Richard's efforts. Richard has not provided any reason why a date of trial valuation would be inequitable. The fact Richard made all of the mortgage payments after separation does not alter the analysis. He also received the exclusive benefit of continuing to live in the home.⁹

In Bono v. Clark¹⁰ — the case the trial court relied on in the present matter-the Court of Appeal was tasked with deciding the proper formula for determining the community's pro tanto interest where a married couple used community funds to pay for improvements to real property the husband owned before the marriage. The court decided the date of the parties' separation, which was more than six years before the trial, was the proper valuation date. The court found it was "appropriate to depart from the Moore/Marsden approach" to valuation because the matter did not "involve[] the division of community property in [a] dissolution proceeding[]."¹¹ The husband had filed for divorce, but he passed away before the dissolution proceedings were completed. The wife filed the action at issue against her husband's estate. The Court of Appeal concluded section 2552 did not apply because the matter concerned the division of property in a civil proceeding, not a dissolution proceeding.¹² The court found "the relevant statute" to be section 771, which provides, "[t]he earnings and accumulations of a spouse . . . while living separate and apart from the other spouse, are the separate property of the spouse."¹³ The court concluded this provision "dictates crediting the separate property estate with postseparation appreciation."¹⁴

Given the present matter is a dissolution proceeding, we would be hard-pressed to find section 2552 does not apply. Under this section, the trial court should have valued the residence as close to the date of trial as practicable in determining the community's pro tanto interest.¹⁵ Nothing in the record indicates a date of trial valuation as opposed to a date of separation valuation would be inequitable in this case. To the contrary, we believe a date of separation valuation is inequitable because the $450,000 increase in the value of the residence between the date of separation and the date of trial was not the result of any efforts by...