Rosenthal v. Rosenthal

• Decision Date: 16 April 1963
• Citation: 30 Cal.Rptr. 49,215 Cal.App.2d 140
• Court: California Court of Appeals Court of Appeals
• Parties: Roberta ROSENTHAL, Plaintiff and Respondent, v. John ROSENTHAL, Defendant and Appellant. Civ. 20090.

Page 49

30 Cal.Rptr. 49

215 Cal.App.2d 140

Roberta ROSENTHAL, Plaintiff and Respondent, v. John ROSENTHAL, Defendant and Appellant.

Civ. 20090.

District Court of Appeal, First District, Division 3, California.

April 16, 1963.

Hearing Denied June 12, 1963.

Cushing, Cullinan, Hancock & Rothert, San Francisco, for appellant.

Field, DeGoff, Rieman & Murphy, Martin E. Field, Sidney F. DeGoff, San Francisco, for respondent.

SALSMAN, Justice.

This is an appeal from a judgment awarding respondent a divorce, and granting to her $225,000 cash, together with a residence of the value of $60,000 as her share of the community property.

Appellant and respondent were married in 1940. At marriage appellant had $59,538.50 which he inherited from his mother. In 1948 appellant received $283,287.57 by inheritance, and in 1955 he received an additional $98,597.63 in the same manner. The parties separated in 1958. It is undisputed that the only earnings of appellant during marriage consisted of his pay while serving in the Navy during World War II, all of which was used for family living expense. Respondent earned about $500 in salary during the war, and this sum was also spent for general family purposes. After the war, appellant organized a corporation and owned all of its stock. Through the corporation he engaged in the business of purchase and sale of airplanes, but this was without profit, and at time of trial, liabilities of the corporation exceeded its assets, and it owed appellant for advances, the sum of $58,790.48.

Appellant's various inheritances came to him principally in the form of shares of stock in sound, dividend-paying corporations. Some of these stocks he left in an agency account with a Chicago bank, which managed the account for him. However, appellant transferred more than $200,000 of his securities into a margin account at a stock brokerage firm, and there engaged in the purchase and sale of securities on margin, in the pursuit of capital gains. Many transactions were recorded in the margin account, some profitable and in others he sustained losses. At the time respondent filed her action, there were securities in the margin account worth $824,677.38, against which there was a debt of $160,695.70. The court found that appellant was in the business of buying, selling and speculating in securities; that he had made gains the result of his skill, knowledge and ability; that the gains were not segregated from his separate property; that the capital with which he speculated had been commingled with trading profits and that the community property consisted of the commingled, unsegregated and untraced balance of property after allowing appellant credit for his inheritances. In effect the court found the entire margin account to be community property, except for those inherited stocks which had been placed in the account and never traded. On these findings the court made the award of community property to respondent which presents the principal issue on this appeal.

The respondent bases her claim to community property on three grounds: first, that much of the property here involved was acquired after marriage, and the presumption of Civil Code section 164 is controlling; second, that appellant engaged in the business of investing and speculating in stocks, and made profits which were commingled with his separate property which he cannot now identify, and the whole therefore is community property; third, that appellant's separate property was converted to community property by agreement.

The presumption established by Civil Code section 164 is not controlling here. It is not denied that the original source of all property here involved is the inherited property of the appellant. Neither party had any earnings of any consequence during the marriage, and what little money was earned was spent for community living expenses. The presumption that property acquired during marriage is community property is controlling only when it is impossible to trace the source of the specific property. (Estate of McGee, 168 Cal.App.2d 670, 677, 336 P.2d 622; Gudelj v. Gudelj, 41 Cal.2d 202, 210, 259 P.2d 656; Mason v. Mason, 186 Cal.App.2d 209, 212, 8 Cal.Rptr. 784; Estate of Ney, 212 A.C.A. 907, 912, 28 Cal.Rptr. 442.) The applicable statute here is Civil Code section 163, which defines the husband's separate property: 'All property owned by the husband before marriage, and that acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is his separate property.' The increase in value of the husband's inheritances here is equivalent to the 'rents, issues and profits' referred to in Civil Code section 163. This does not mean, however, that the community estate is to be left without recourse.

It is the rule that where, as here, separate property is used to produce income and profits, there must be an apportionment of the gains between the separate and community estates. (Estate of Nielson, 57 Cal.2d 733, 740, 22 Cal.Rptr. 1, 371 P.2d 745; Witaschek v. Witaschek, 56 Cal.App.2d 277, 281, 132 P.2d 600.) At least two methods of apportionment have been suggested and commonly recognized by the courts. In Pereira v. Pereira, 156 Cal. 1, 103 P. 488, 23 L.R.A.,N.S., 880, the usual rate of interest on a long term investment well secured was credited to the separate property, and the excess allowed to the community; in other cases income and profits have been apportioned between separate and community property in accordance with the extent to which such income and profits were allocable to the husband's efforts or his separate property investment. (Huber v. Huber, 27 Cal.2d 784, 792, 167 P.2d 708; Estate of Hale, 170 Cal.App.2d 351, 357, 338 P.2d 997; Witaschek v. Witaschek, supra, 56 Cal.App.2d 277, 280, 132 P.2d 600.) No arbitrary rule has been established. If the facts justify it, a larger rate of return may be allowed than that applied in Pereira v. Pereira, supra, 156 Cal. 1, 103 P. 488, 23 L.R.A.,N.S., 880. (See Gilmore v. Gilmore, 45 Cal.2d 142, 150, 287 P.2d 769; Tassi v. Tassi, 160 Cal.App.2d 680, 691, 325 P.2d 872.)

Here the trial court did not purport to allow any interest return to appellant on his separate property used in the margin account, and the court did not fix any value on the appellant's time, skill and knowledge devoted to the enhancement of his separate property, although there is evidence in the record relating to the value of appellant's time and services, and from which such a finding could have been made. What the court did was to assign all of appellant's separate property traded in the margin account, together with all of the profits and the increase thereof to the community. In Strohm v. Strohm, 182 Cal.App.2d 53, at page 62, 5 Cal.Rptr. 884, at page 889, the court said: 'The time, efforts, and skill of the husband are assets of the community and when they are used for the enrichment of the separate property of the husband, the community must be compensated. * * * If there is evidence of enrichment of separate property, the probable contributions of the community and of the capital investment of the husband must be determined from all the circumstances of the case. This requires findings of fact.' Thus, in this case, if the interest...