Lafkas v. Lafkas (In re Lafkas)

• Decision Date: 16 June 2015
• Docket Number: B243635
• Citation: 237 Cal.App.4th 921,188 Cal.Rptr.3d 484
• Court: California Court of Appeals Court of Appeals
• Parties: IN RE MARRIAGE OF John and Jean LAFKAS. John Lafkas, Appellant, v. Jean Lafkas, Respondent.

237 Cal.App.4th 921

188 Cal.Rptr.3d 484

IN RE MARRIAGE OF John and Jean LAFKAS.John Lafkas, Appellant

v.Jean Lafkas, Respondent.

B243635

Court of Appeal, Second District, Division 5, California.

Filed June 16, 2015

Law Offices of Jeanne Collachia and Jeanne Collachia for Appellant.

Kearney Baker and Gary W. Kearney, Pasadena, for Respondent.

Opinion

KRIEGLER, J.

The husband (husband) owned one-third of a real estate partnership for several years prior to marrying the wife. (wife) During the parties' marriage, the partnership modified the partnership agreement. The modified agreement stated the names of each partner, including husband and wife as owners of a one-third interest. Husband and wife filed for dissolution within a year.

On appeal, husband contends the partnership interest is his separate property, because the documents do not contain an express declaration transmuting the character of the property interest as required under Family Code section 852.¹ Wife asserts that the partnership interest is community property under the joint title presumption of section 2581, which provides that property acquired during marriage in joint form is presumed to be community property. We hold that when a spouse places separate property in joint title form, the transmutation requirements of section 852 must be satisfied before the joint title presumption of section 2581 applies. The documents in this case do not contain an express transmutation of husband's separate property interest in the partnership, and therefore, it remained husband's separate property.

We asked the parties for additional briefing on the character of loan proceeds received by the partnership after the modification. We remand the matter for the trial court to determine whether the lenders intended to rely on the parties' community property to satisfy the loans. If so, the community acquired a proportionate share of husband's interest in the partnership. Husband contends the trial court abused its discretion by awarding excessive attorney fees to wife. The award of attorney fees to wife must be reversed for a new determination in light of our opinion. We reverse and remand for further proceedings.

FACTS

John Lafkas began working as a police officer in 1966. In 1971, Lafkas formed Smile Enterprises to invest in real property with friends Eric Cleworth and Nicholas Roberts. Each partner contributed $3,333 in exchange for one-third of the profits and losses of the partnership. Other than occasional distributions to the partners, the profits were reinvested in the partnership.

Lafkas married in 1972, had a daughter, and divorced in 1980. The partnership agreement was extended at the end of its term. The statement of partnership recorded in August 1982, listed the names of each partner of Smile Enterprises as follows: “John Lafkas; an unmarried man, [¶] Eric Cleworth; a married man, and [¶] Nicholas P. and Sylvia V. Roberts; husband and wife.”

In 1985, Smile Enterprises purchased property on Maple Avenue in Monrovia. The income from rental units on the property was sufficient to meet all of the property's expenses. Smile Enterprises' expenses were paid from profits held in its bank accounts. Smile Enterprises purchased a property in Pasadena, and at some point, Eric Cleworth's wife, Dorcas Cleworth, was added to the partnership.

On December 15, 1990, Lafkas married Jean Doane.² Lafkas was 48 years old and Doane was 36 years old at the time. Doane held a master's degree in educational psychology, obtained a degree in education during the marriage, and began teaching elementary school in 1992. Lafkas did not expend any money or effort on behalf of Smile Enterprises.

In 1995, the partnership decided to exchange the Monrovia property through an Internal Revenue Code section 1031 tax deferred exchange. (26 U.S.C. § 1031.) Smile Enterprises entered into an agreement with a qualified intermediary which was signed by the Robertses, the Cleworths, and Lafkas. They also entered into escrow instructions on behalf of Smile Enterprises. The partnership identified two properties on Harvill Lane in Riverside, California, for the exchange. The total cost of the properties was more than the amount held in escrow from the Monrovia property. In March 1995, the Robertses, the Cleworths, and Lafkas applied for a loan to finance the balance of the purchase price of the properties. Smile Enterprises' net worth at the time was between $500,000 and $600,000.

Lafkas asked Doane to participate in the transaction. Lafkas testified at trial that Smile Enterprises qualified for the loan based on its assets and the expected income from the properties. After a discussion with the loan officer, he believed that because he was married, the bank required the addition of Doane to the partnership and the loan application. Doane testified at trial that her credit was necessary for the partnership to qualify for the loan to purchase the Riverside properties.

A two page document was prepared entitled, “Modification and Extension of General Partnership Agreement.” The first page states, in pertinent part, “Comes now SMILE ENTERPRISES and files herewith a Modification and Extension of its General Partnership Agreement of August 16, 1971 as follows: [¶] 1. Pursuant to the provisions of the original General Partnership Agreement, the term of the partnership herewith is extended and is to be in effect from August 16, 1981 continuing until December 31, 2026 ... 3. The name of each of the partners is as follows: [¶] John and Jean Lafkas, husband and wife, as to 1/3 interest [¶] Eric and Dorcas Cleworth, husband and wife, as to 1/3 interest [¶] Nicholas P. Roberts ... and Sylvia V. Roberts ..., husband and wife, as to 1/3 interest. [¶] 4. The above are all of the partners of said partnership. [¶] 5. Any one partner may act on behalf of the partnership to carry out the business of the partnership as specified in the original General Partnership Agreement.” The second page contained the signatures of the individuals.

A statement of partnership was recorded that states, “The names of each of the Partners are John Lafkas, Jean Lafkas, Eric Cleworth, Dorcas Cleworth, Nick Roberts, aka Nicholas Roberts, aka, Nicholas P. Roberts, and Sylvia Roberts, aka Sylvia V. Roberts pursuant to the extension and modification agreement of the Partnership Agreement dated as of [August 16, 1971].” It stated that the signature of all partners was required to execute any contracts of sale, notes, deeds or security agreements on behalf of the partnership, but any other documents may be signed by any of the partners. Each of the named individuals signed the statement in June 1995. Lafkas signed it on June 12, 1995.

The partnership paid $252,000 for each of the Riverside properties, a total of $504,000, to Blythe Limited Partnership. The partnership provided deposits totaling $108,646.16, which included $51,843.64 for one property and $56,802.52 for the other. First and second deeds of trust were executed on behalf of the borrower Smile Enterprises by each of the six individuals in their capacity as general partners. Home Savings loaned $164,500 for each property, and Blythe took a second deed of trust for each property in the amount of $37,500. The total amount borrowed was $404,000. The grant deeds recorded in July 1995, reflect that Blythe granted the real property in Riverside to Smile Enterprises.

Lafkas did not invest any further funds or effort in the Riverside properties. Ten months later, on April 22, 1996, Lafkas and Doane separated. Lafkas took service-connected disability retirement effective June 30, 1996.

PROCEDURAL HISTORY

Lafkas filed a petition for legal separation on May 14, 1996. Doane filed a response requesting dissolution of the marriage on May 31, 1996. A judgment of dissolution as to marital status only was entered nunc pro tunc as of May 10, 2000.

Lafkas moved for a separate trial of the interest in Smile Enterprises, which Lafkas claimed was his separate property and Doane claimed was community property. A trial was held before Commissioner Louise Halevy, Judge Pro Tem of the Los Angeles Superior Court, on September 29, 2003; January 20, 2004; and May 19 and 20, 2005.

Lafkas argued that none of the documents in the case, including the modification of the partnership agreement, contained an express declaration transmuting his separate property interest in the partnership. Doane argued that the modification made her a partner as to an undivided one-third interest under partnership law, and community property law did not apply.

Lafkas testified to the following additional facts. He expected the rental income from the Riverside properties would be sufficient to pay the mortgage and expenses of the properties. If not, Smile Enterprises held retained earnings and profits in a partnership savings account to be used for the expenses of operating the Riverside properties. The Smile Enterprises partners qualified for the loan without Doane's participation. Sylvia and Dorcas have their own businesses and were partners in Smile Enterprises prior to the partnership's application for a loan to purchase the Riverside properties. After speaking with the loan officer, however, Lafkas believed Doane had to be included on the partnership agreement and the loan application because they were married. He told Doane that she needed to be added to the documents in order to satisfy the lender's requirements. He believes her credit was reviewed in connection with the purchase.

Lafkas believed that he owned one-third of Smile Enterprises before and after the modification. He did not believe that he had assigned any of his interest in Smile Enterprises to Doane or made her a legal owner of Smile Enterprises. Lafkas told Doane that she was being made a partner to facilitate the purchase of the properties and as long as they were together, she would have a share. In other words, as long as they were married, she would get what he got. He did not intend...