In re Marriage of Herrera

1

In re the Marriage of MARIBEL HERRERA and MICHAEL HERRERA.

MARIBEL HERRERA, Respondent, v. MICHAEL HERRERA, Appellant.

A162657

California Court of Appeals, First District, Third Division

July 23, 2024

NOT TO BE PUBLISHED

Contra Costa County Super. Ct. No. MSD17-04913

FUJISAKI, ACTING P.J.

This is an appeal from a judgment in a marital dissolution action between Maribel Herrera and Michael Herrera.^[1] Michael contends the trial court erroneously found that: (1) under the so-called "Moore-Marsden rule,"^[2]the community had a pro tanto interest in real property that Michael had purchased before marriage; (2) the proceeds of a fire insurance policy and a refinancing of a separate property loan during marriage were community property; and (3) the community was entitled to so-called Watts charges^[3] for Michael's occupation of the marital residence between the date of separation and closing arguments. We affirm the judgment.

Factual and Procedural Background

In August 1994, prior to the parties' marriage, Michael purchased real property located on Paul Scarlett Drive in Concord (hereafter the Property) for $186,000 and made payments on the mortgage from his separate property earnings. Maribel came from the Philippines in 1996, and the parties were married in August 1996. They lived at the Property during the marriage. At all relevant times, title to the Property remained solely in Michael's name.

In February 1999, Michael submitted an application to refinance the mortgage on the Property. In his application, Michael identified his employment earnings and listed the Property and various bank accounts and vehicles as assets. He also indicated that title to the Property would be held as his sole and separate property as a married man.

At trial, Michael testified he was told by a loan officer that the lender wanted to have Maribel's name on the loan, but Maribel refused to cosign the loan. Michael told Maribel that in order to not be on the loan, she would have to sign an interspousal transfer grant deed (ITGD). Michael testified that Maribel "chose to sign" the ITGD, and that "it was explained in full detail by Helen Stone," a close friend of Michael's who witnessed Maribel's signing of the ITGD.

The ITGD stated in relevant part: "ON March 16, 1999, FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged Maribel Herrera, wife of the grantee hereby GRANT(S) to Michael O. Herrera, a married man as his sole and separate property the real property in the City of CONCORD, County of Contra Costa, State of California, described as: Lot 73, Map of Subdivision 2989 filed January 5, 1962, in Map Book 85, Page 37, Contra Costa County Records. It is the intention of the grantor herein to relinquish all of her right, title and interest, whether community property or otherwise, in and to the hereinabove described property and to vest said property in the above grantee as his separate property." (Some boldface type omitted.)

Maribel testified that Michael "told me to sign the deed" because he "need[ed] to refinance the house and buy a vehicle" for his work commute, and that at the time "when I signed, I feel pressured." Maribel said she received no money or anything else in exchange for signing the ITGD, and that when she signed it, she had not heard of a Moore/Marsden calculation and did not know that she had any interest in the Property. Maribel read and signed the ITGD "quick[ly]" because she trusted that Michael would "take care of our finances. I don't have a job. I'm taking care of our first child." Maribel further explained, "And if I don't sign it, what's my choices here? I will end up paying the mortgage if something happens to him. And I don't know anything about this Moore-Marsden. I don't have no knowledge about loans and properties. I was just there for Michael to support him on whatever we need. Then I sign it." Maribel testified she understood the effect of the ITGD was that she would not be responsible for the refinance loan.

The mortgage on the Property was successfully refinanced in March 1999.

Thereafter, in October 1999, a malfunctioning stove caused a fire that damaged the Property. Michael maintained a fire insurance policy he had purchased at the time of refinancing, and he paid the premiums on the policy from his employment earnings. The fire insurance proceeds were used to purchase appliances and materials to "essentially rebuil[d] the entire home." Michael testified the remaining $150,000 in proceeds were placed in various bank accounts, including a joint account shared with Maribel, and separate IRA accounts for each of them.

The refinanced mortgage was paid off in June 2015. All payments on the refinanced mortgage were made with Michael's earnings.

The parties separated on October 10, 2017, and Maribel filed a petition for dissolution of marriage on October 20, 2017. Trial was held on various dates in August and September 2019. The trial court heard testimony from Maribel, Michael, Brandon Carpenter (Maribel's forensic accounting expert), and Tom Blair (the court's appraisal and valuation expert). The parties submitted written closing arguments on January 19, 2021.

In March 2021, after issuing a proposed statement of decision and receiving Michael's objections thereto, the trial court issued its final statement of decision finding in favor of Maribel on all issues. The court found, in relevant part, that although the Property was Michael's separate property, the community had a pro tanto interest in it under the Moore-Marsden rule because community property funds (Michael's earnings during marriage) had been used to pay down the debt. In so concluding, the court rejected Michael's arguments that the Moore-Marsden rule had been abrogated or superseded by statute, and that Maribel had waived her share of the community interest by executing the ITGD. The court further found the ITGD did not transmute the community's interest in the Property into Michael's separate property because Michael did not rebut the legal presumption of undue influence that arises whenever there is a transfer from one spouse to another that gives one spouse an unfair advantage.

The trial court further determined the loan proceeds from the 1999 refinancing were community property because Michael did not overcome the presumption that proceeds from a loan incurred during marriage are presumed to be community property. Specifically, Michael did not demonstrate the lender relied solely on his separate property when it approved the loan. The court also found the fire insurance proceeds were community property because the policy was purchased with community funds. The court then concluded the community was entitled to Watts charges for Michael's sole occupation of the Property between the date of separation and the parties' submission of closing arguments.

Based on the calculations prepared by forensic accounting expert Carpenter, the trial court apportioned the interests in the Property as 29.08 percent Michael's separate property and 70.92 percent community property. The court further concluded, based on the then-current appraisal value of the Property of $615,000, that Michael's total interest in the Property was $396,927.50 ($218,072.50 for his share of the community interest plus $178,855.00 for his separate property interest), and Maribel's share of the community interest in the Property was $218,072.50. The court additionally found, based on the Property's fair rental value of $3,200 per month and the community's 70.92 percent interest, that Michael owed $42,560 in Watts charges to Maribel for his 28 months of postseparation occupation of the Property. In total, the court ordered Michael to make an equalizing payment to Maribel of $260,632.50.

This appeal followed.

Discussion

"In a marital dissolution proceeding, a court's characterization of the parties' property-as community property or separate property-determines the division of the property between the spouses. [Citations.] Property that a spouse acquired before the marriage is that spouse's separate property. (§ 770, subd. (a)(1).) Property that a spouse acquired during the marriage is community property (§ 760) unless it is (1) traceable to a separate property source [citations], (2) acquired by gift or bequest (§ 770, subd. (a)(2)), or (3) earned or accumulated while the spouses are living separate and apart (§ 771, subd. (a)). A spouse's claim that property acquired during a marriage is separate property must be proven by a preponderance of the evidence." (In re Marriage of Valli (2014) 58 Cal.4th 1396, 1399-1400 (Valli).)

" 'The trial court's findings on the characterization and valuation of assets in a dissolution proceeding are factual determinations which are reviewed for substantial evidence.'" (In re Marriage of Wozniak (2020) 59 Cal.App.5th 120, 130 (Wozniak).) "[W]e examine the evidence in the light most favorable to the prevailing party and give that party the benefit of every reasonable inference. [Citation.] We accept all evidence favorable to the prevailing party as true and discard contrary evidence." (In re Marriage of Drake (1997) 53 Cal.App.4th 1139, 1151.)

A. The Rebuttable Presumption of Undue Influence in Interspousal Transfers that Unfairly Advantage One Spouse

Michael contends the trial court erred in applying a rebuttable presumption of undue influence to Maribel's execution of the ITGD. In particular, he asserts this principle was impliedly abrogated in 1985 when the transmutation statutes (§§ 850-853) became effective. We disagree and conclude substantial evidence supported the court's finding that Michael failed to rebut the presumption of undue influence.

As relevant here, the transmutation statute...