In Re Marriage of Jafeman

Opinion

Edward Jafeman (hereinafter “Edward”) appeals from a judgment (dissolution of marriage) with the exception of that por *251 tion decreeing a dissolution of his marriage to Mary Jafeman (hereinafter “Mary”). Mary appeals from an order denying an application for attorney’s fees to resist Edward’s appeal, with the exception of that portion of the order awarding the wife the actual costs of transcript and briefs.

Facts

Edward and Mary were married on May 13, 1951. They separated in October of 1968. There are no children from this marriage. Both have been employed throughout the years of their marriage. Mary has been employed in the same job since 1953 and has contributed to a pension fund.

At the time the parties were married Edward resided at 133 Hickory Lane in San Mateo. Mary lived across the street at 132 Hickory Lane. The residence at 133 Hickory Lane had been purchased by Edward and his former wife in 1942 for $6,500. Following his divorce from his first wife, Edward had the property put in his own name. At the time of his marriage to Mary, Edward owed $4,266.17 on the mortgage which existed on the property. Mary owed $3,701 on her residence.

Mary testified, without objection, that she had gone to the real estate offices of Fox and Carskadon and had examined their records pertaining to the sale of homes on Hickory Lane in 1951. She stated that the highest price paid for a home during that year was $14,500. Mary stated that, as the home at 132 Hickory Lane was identical to the home at 133 Hickory Lane, both were worth the same amount. Edward testified that, in his opinion, the home at 133 Hickory Lane was worth $18,000 at the time the parties were married. He stated that his opinion was based on the fact that another home on the block had been sold for $17,500 during that year.

Prior to their marriage the parties had discussed purchasing a new home as Edward’s home only had two bedrooms and this was inadequate for Mary and her son and daughter by a previous marriage. However, Edward was fond of his home and since Mary’s children were going to school in the neighborhood, they decided to live in Edward’s house.

During the years of their marriage Edward and Mary commingled their personal earnings and the rental income from the property located at 132 Hickory Lane. Beginning in July of 1966, Mary’s parents occupied the residence at 132 Hickory Lane rent free. During the first 12 years of the marriage, Mary handled all of the family’s finances. In 1962 Edward and Mary experienced marital difficulties. The parties subsequently reconciled and thereafter Edward managed the family’s finances. Following this period Mary and Edward each maintained separate savings accounts. Mary had an *252 account at the Peninsula Savings and Loan Association which had a balance of approximately $500 at the time of trial. Mary believed that the contents of this account were community property.

Mary and Edward never had any conversations respecting the ownership of the residence located at 133 Hickory Lane. Mary testified that she always referred to it as “our home” except when trying to differentiate it from the residence at 132 Hickory Lane. Mary did not know that the title to 133 Hickory Lane was in Edward’s name only until shortly before filing for divorce. She stated that she had always thought it was “our property” and she had never checked the records at the courthouse.

During the years of the marriage, the principal and interest owing on the mortgage on 133 Hickory Lane, as well as all of the property taxes assessed against the property, were paid with money drawn from the commingled fund. Mary was asked if she had an opinion as to the present market value of the home. She testified, without objection, that she had obtained an estimate from Fox and Carskadon of $35,000 and that, in her opinion, this was the present fair market value of 133 Hickory Lane. She also testified that she had received an estimate of $32,000 for 132 Hickory Lane. It appears from the record that these estimates were written. Edward testified that Mary had obtained an oral estimate in 1968 and that it was $34,500 for 133 Hickory Lane and $34,000 for 132 Hickory Lane.

At the time the parties married, Edward’s home was almost fully furnished. His former wife had taken a sofa, some end tables and a coffee table and the refrigerator. The remaining furniture was distributed to Mary’s relatives and to a friend of her son. Edward estimated that he had paid $5,000 for the furniture. Mary then moved five rooms of furniture from 132 Hickory Lane over into 133 Hickory Lane. Mary had $1,500 which was used to recover some of the furniture, relay the carpets, and purchase paint.

During the first six months of the marriage Edward and Mary added a bedroom and a bathroom to the residence at 133 Hickory Lane. They also constructed a garden house and installed raised flower beds, a tile patio, and a fence. These additions cost approximately $4,700. Mary contributed $3,000 towards this amount which she obtained by refinancing the loan at 132 Hickory Lane, thus raising the indebtedness on that home to $6,700. The indebtedness of $3,000 resulting from the refinancing was paid off with money drawn from the spouses’ commingled funds.

During the years of their marriage, Edward and Mary expended money drawn from their commingled funds for remodeling and redecorating the home at 133 Hickory Lane. They obtained two loans for these purposes. *253 The first loan was used for interior improvements in the dining room and living room, new linoleum in the kitchen and a new door, sliding glass windows, and new door fixtures. A portion of the loan was used for the purchase of a chandelier for the dining room and for a bedspread which was made to order. In 1964 they had $2,000 worth of carpet installed. In 1967 Edward and Mary obtained a loan of $3,500. They used this loan to convert a bedroom into a den, to hang new drapes in the bedroom, bathroom and den, to hang a new chandelier in the bathroom, to hang a chandelier in another room, to buy a marble top table for the kitchen, and to reupholster the breakfast nook set and put up wallpaper. Mary testified that during their marriage she and Edward purchased a sofa and some chairs at a cost of approximately $1,500. Mary estimated that their present value was about $400. Edward estimated that the cost of the fixtures and furniture in the home was between $8,000 and $10,000 and that they were currently worth one-half of their original cost.

During the course of the marriage, money from the parties’ commingled fund was used for the improvement and maintenance of the residence at 132 Hickory Lane. Mary’s father, and later Edward, painted the exterior and interior of the home several times. Edward installed a sprinkler system in the back yard and built a bench and a divider. Edward also replaced the door fixtures. The water heater was replaced twice and the furnace was repaired. The testimony respecting the cost of this work was in substantial conflict. In particular Edward contended that $700 was expended on paint, whereas Mary stated that $195 would be a reasonable figure. Edward contended that $3,000 was expended on plants and garden supplies, whereas Mary stated that $200 was probably spent for this purpose.

On October 15, 1968, Mary filed an action for divorce on the ground of extreme cruelty. Edward filed an answer and a cross-complaint for divorce on the ground of extreme cruelty. Mary filed an answer to the cross-complaint. The case was tried on December 22 and 23 of 1969.

On July 28, 1970, the court filed its findings of fact and conclusions of law. The findings which pertain to the issues raised upon this appeal may be summarized as follows: The court found that the residence located at 133 Hickory Lane is community property; that during their marriage the parties intended the home to be owned as community property; that although the question of title to the property was never discussed, it was Mary’s belief that the home was community property and that she did not learn that title was not in their joint names until shortly before filing for divorce; and that each of the spouses was entitled to an undivided one-half interest in said residence.

*254 The court also foúnd that the furnishings which Mary had brought from “her separate property home at 132 Hickory Lane” and placed in the home at 133 Hickory Lane are community property and that each party was entitled to an undivided one-half interest in said furnishings; that the cash surrender value of Mary’s pension fund and the contents of an account in her name at the Peninsula Savings and Loan Association are her separate property; and that additional attorney’s fees in the sum of $1,200 should be paid by Edward to Mary’s counsel.

The court concluded that the residence at 133 Hickory Lane and all of its household furnishings and furniture, as well as certain insurance policies, pension funds, and bank accounts are community property and should be divided equally after payment of community debts. The court concluded that Edward was to pay Mary’s counsel the sum of $1,200 as attorney’s fees, in addition to any allowance of counsel fees ordered pendente lite, plus costs in the sum of $12.60. The court did not include this sum as a debt of the community.

On July 28, 1970, the court entered an interlocutory judgment of dissolution of marriage. Following the filing of a notice of appeal by Edward, Mary filed a motion for attorney’s fees and costs to resist the appeal. The court ordered Edward to pay only the actual costs of transcripts and briefs. Mary appealed from this order.

Community Property Finding

Edward contends that the court’s finding that the residence at 133 Hickory Lane is community property is not supported by substantial evidence. Upon considering the record before us in the light of the applicable legal principles, we have concluded that this contention is well taken and that the portion of the judgment awarding each party an undivided one-half interest in the residence must be reversed. However, we do not agree with Edward’s further contention that the residence is wholly his separate property.

A finding that property owned by a married person is community property is a finding of an ultimate fact. (Thomasset v. Thomasset, 122 Cal.App.2d 116, 129 [264 P.2d 626] [disapproved on other grounds See v. See, 64 Cal.2d 778, 786 (51 Cal.Rptr. 888, 415 P.2d 776)].) Such a finding is binding upon an appellate court if it is supported by sufficient evidence or if it is drawn from evidence which is conflicting or subject to differing inferences. If the trial court has concluded that a presumption has been overcome, this determination will not be disturbed upon appeal if the evidence is in substantial conflict or is subject to varying inferences. (Mears v. Mears, 180 Cal.App.2d 484, 501 [4 Cal.Rptr. 618] [disapproved on other grounds *255 See v. See, 64 Cal.2d 778, 785 (51 Cal.Rptr. 888, 415 P.2d 776)]; Millington V. Millington, 259 Cal.App.2d 896, 915 [67 Cal.Rptr. 128]; Patterson v. Patterson, 242 Cal.App.2d 333, 339 [51 Cal.Rptr. 339] [disapproved on other grounds See v. See, 64 Cal.2d 778, 784 (51 Cal.Rptr. 888, 415 P.2d 776)].)

All property owned by a husband prior to marriage, together with the rents, issues, and profits arising from the property after marriage, is his separate property. (Civ. Code, § 5108; 1 Patterson v. Patterson, supra, 242 Cal.App.2d 333, 340; Mears V. Mears, supra, 180 Cal.App.2d 484, 498; Kenney v. Kenney, 128 Cal.App.2d 128, 135 [274 P.2d 951] [disapproved on other grounds See v. See, 64 Cal.2d 778, 785 (51 Cal.Rptr. 888, 415 P.2d 776)].) The character of the property is fixed as of the time it is acquired and it is not altered by the occurrence of marriage or by the subsequent use of the property in the marital relationship. (Mears v. Mears, supra, at p. 498; Kenney v. Kenney, supra, at p. 135.) However, a husband and wife may change the character of property from separate to community by an oral agreement. (Woods v. Security-First Nat. Bank, 46 Cal.2d 697, 701 [299 P.2d 657]; Estate of Wieling, 37 Cal.2d 106, 108 [230 P.2d 808].) No particular formalities are required for an effective agreement. (James v. Pawsey, 162 Cal.App.2d 740, 749 [328 P.2d 1023].) The agreement may be either express or implied. (Mears v. Mears, supra, at p. 499; James V. Pawsey, supra, at p. 749; Dickson v. Dickson, 225 Cal.App.2d 752, 756 [37 Cal.Rptr. 718].) If the wife acquires possession of the property and manages and controls it, this does not in and of itself demonstrate that the husband intended to alter the character of his property. (Title Insurance etc. Co. v. Ingersoll, 153 Cal. 1, 5 [94 P. 94].) However, the nature of the transaction or the surrounding circumstances may establish the existence of such an intent on the part of the husband. (Title Insurance etc. Co. v. Ingersoll, supra, at p. 5; Millington v. Millington, supra, 259 Cal.App.2d 896, 913-914; Long v. Long, 88 Cal.App.2d 544, 549 [199 P.2d 47].) The acts of the parties and their dealing with the property may also establish that they intended a community interest. (Estate of Nelson, 224 Cal.App.2d 138,143 [36 Cal.Rptr. 352]; Lawatch v. Lawatch, 161 Cal.App.2d 780, 789 [327 P.2d 603].)

Even in the absence of an agreement, separate property may be transmuted into community property if it is commingled with community property in such a manner that it is impossible to segregate. However, if it is possible to trace the separate property, it retains its character as separate *256 property even though it may have undergone a change in form or identity. (Patterson v. Patterson, supra, 242 Cal.App.2d 333, 341; Mears v. Mears, supra, 180 Cal.App.2d 484, 499-500; Kenney v. Kenney, supra, 128 Cal.App.2d 128, 135; Thomasset v. Thomasset, supra, 122 Cal.App.2d 116, 124.)

The use of community funds to improve the separate property of one spouse does not alter the separate character of the property. (Spreng v. Spreng, 119 Cal.App. 155, 159 [6 P.2d 104].) In the absence of a contrary agreement, the improvements have the character of the separate property and belong to its owner. (Wheeland v. Rodgers, 20 Cal.2d 218, 222 [124 P.2d 816].) If the husband expends community funds for the improvement of his wife’s separate property, it is presumed that he has made a gift of the community funds. However, if the husband expends community funds, without the consent of his wife, for the improvement of his separate property, the community is entitled to reimbursement. (Dunn v. Mullan, 211 Cal. 583, 590 [296 P. 604, 77 A.L.R. 1015].) These rules are both premised on the fact that the husband is the manager of the community funds. (See § § 5125, 5127.) It is reasoned that when the husband exercises this power so as to effect the improvement of his separate property, recoupment by the community is necessary in order to avoid constructive fraud against the wife. (Dunn v. Mullan, supra, at p. 590; Wheeland v. Rodgers, supra, at p. 222.) This reasoning is inapplicable when the wife consents to the use of community funds for the improvement of the husband’s separate property. If the wife’s consent is established, the community is not entitled to reimbursement. (Estate of La Belle, 93 Cal.App.2d 538, 544-545 [209 P.2d 432]; Estate of Wooten, 64 Cal.App.2d 96, 101 [148 P.2d 33].)

If community funds are used to pay part of the purchase price on property acquired by one spouse prior to marriage, the property cannot be considered wholly community for the separate and community sources of the property can be traced. (Estate of Neilson, 57 Cal.2d 733, 744 [22 Cal.Rptr. 1, 371 P.2d 745].) The community has a pro tanto interest in such property in the ratio that the payments on the purchase price made with community funds bears to the payments made with separate funds. (Estate of Neilson, supra, at p. 744; Bare v. Bare, 256 Cal.App.2d 684, 689-690 [64 Cal.Rptr. 335]; Forbes v. Forbes, 118 Cal.App.2d 324, 325 [257 P.2d 721]; Giacomazzi v. Rowe, 109 Cal.App.2d 498, 501 [240 P.2d 1020]; Vieux v. Vieux, 80 Cal.App. 222, 229 [251 P. 640].) The community interest is determined by comparing the ratio of the community investment to the total separate and community investment in the property. If the fair market value has increased disproportionately to the increase in equity, the commu *257 nity is entitled to participate in that increase in a similar proportion. (Bare v. Bare, supra, at p. 690.)

With these principles in mind, we turn to the facts of the instant case. Edward had acquired the residence at 133 Hickory Lane and had paid part of the purchase price prior to his marriage to Mary. It follows that Edward’s initial equity in the home is his separate property. (§5108; Patterson v. Patterson, supra, 242 Cal.App.2d 333, 340; Mears v. Mears, supra, 180 Cal.App.2d 484, 498; Kenney v. Kenney, supra, 128 Cal.App.2d 128, 135.) Following the marriage of the parties, payments on the purchase price were made with community funds. As a result, the increase in the equity attributable to these payments is community property. (Estate of Neilson, supra, 57 Cal.2d 733, 744; Bare v. Bare, supra, 256 Cal.App.2d 684, 689-690; Forbes v. Forbes, supra, 118 Cal. App.2d 324, 325; Giacomazzi v. Rowe, supra, 109 Cal.App.2d 498, 501; Vieux v. Vieux, supra, 80 Cal.App. 222, 229.) As Edward and Mary each testified that they never discussed the ownership of the home, there is no basis in the record for concluding that Edward’s initial equity in the home was transmuted into community property by an express agreement of the parties.

It is apparent that the trial court’s finding that the residence is community property may be upheld only if the record presents substantial evidence of an implied agreement between the parties to- alter the character of Edward’s initial equity in the home. It is true that Mary and Edward lived in the home during their marriage. However, mere use of property in the marital relationship does not alter its character. (Mears v. Mears, supra, 180 Cal.App.2d 484, 498; Kenney v. Kenney, supra, 128 Cal.App.2d 128, 135.) It is also true that during the first 12 years of the marriage, Mary managed the family finances and applied community funds toward meeting the house payments and maintaining and improving the property. However, the use of community funds to improve the separate property of one spouse does not effect a change in the character of the separate property. {Spreng v. Spreng, supra, 119 Cal.App. 155, 159.) Moreover, the possession and management by one spouse of the separate property of another does not in and of itself demonstrate that the spouse to whom the property belonged intended to relinquish it to the community. However, such an intent may be shown by the nature of the transaction or by the surrounding circumstances. {Title Insurance etc. Co. v. Ingersoll, supra, 153 Cal. 1, 5.) In addition, the acts of the parties and their dealing with the property may establish that they intended a community interest. {Estate of Nelson, supra, 224 Cal.App.2d 138, 143; Lawatch v. Lawatch, supra, 161 Cal.App.2d 780, 789.) The *258 trial court apparently felt that these principles were applicable for it found that “upon the basis that after fourteen years of the aforesaid application of community funds, the clear import of the husband’s conduct refutes his contention and affirms that of wife.”

Turning to the record, the only evidence of conduct by Edward which related to the character of the property was testimony concerning the manner in which he referred to the residence. The testimony on this point was in conflict. Mary testified, without objection, that they always referred to the residence as “our home.” Edward contended that they always distinguished between his house and Mary’s house. The trial court was entitled to resolve this conflict by crediting Mary’s testimony. Nevertheless, the mere fact that Edward referred to the residence as “our home” does not constitute substantial evidence of an intent to relinquish his separate interest in the property. (Cf. Long v. Long, supra, 88 Cal.App.2d 544, 549 [other comments by husband respecting the community character of other property]; Lawatch v. Lawatch, supra, 161 Cal.App.2d 780, 790 [commingling of funds and filing joint tax returns with respect to' income from the property]; Estate of Nelson, supra, 224 Cal.App.2d 138, 143-144 [filing joint tax returns].)

The record does not contain any other evidence tending to show an implied agreement to alter the character of Edward’s interest. Edward never had the title to the property put in both parties’ names.

The only evidence on this issue adduced by Mary was her testimony that “I thought it was our property.” Apparently, on the basis of this testimony, the court found “that although the question of title to 133 Hickory Lane . . . was never discussed, it was the belief of [Mary] that said property was community property of the marriage. [Mary] did not learn that title was not in their joint names . . . until shortly before filing the within action for divorce in October, 1968.”

It has been held that testimony of the hidden beliefs of a party is ineffective to show that a joint tenancy deed is not reflective of the character of the property. (Machado v. Machado, 58 Cal.2d 501, 506 [25 Cal.Rptr. 87, 375 P.2d 55]; Gudelj v. Gudelj, 41 Cal.2d 202, 212 [259 P.2d 656]; Socol v. King, 36 Cal.2d 342, 346 [223 P.2d 627]; Watson v. Peyton, 10 Cal.2d 156, 158 [73 P.2d 906].) An analogous conclusion is warranted by the facts of the instant case. Although it might be found that testimony by a husband as to his undisclosed intent to transmute his separate property to community property has probative value, the same cannot be said of testimony by a wife as to her undisclosed beliefs respect *259 ing her husband’s property. Such testimony has no probative value as to the intent of the husband and it is not effective to show an implied agreement between the parties to alter the character of the husband’s property.

The finding of the trial court that the residence at 133 Hickory Lane is community property is not supported by the evidence. In response to Mary’s argument upon appeal, we note that See v. See, 64 Cal.2d 778 [51 Cal.Rptr. 888, 415 P.2d 776], in no' way supports the finding of the trial court. In See the court held that a husband who elects to use his separate property to defray community expenses is not entitled to reimbursement from the community in the absence of an agreement to that effect. (At p. 785.) See was concerned with the use of separate funds during the course of the marriage for meeting ongoing community expenses. There is no indication that See was intended to affect the line of cases which recognize that a husband may maintain as separate property the equity which he possessed in the family residence prior to the marriage. (Estate of Neilson, supra, 57 Cal.2d 733, 744; Bare v. Bare, supra, 256 Cal.App.2d 684, 689-690; Forbes v. Forbes, supra, 118 Cal.App.2d 324, 325; Giacomazzi v. Rowe, supra, 109 Cal.App.2d 498, 501; Vieux v. Vieux, supra, 80 Cal.App. 222, 229.) See does not require that it be presumed that Edward intended to make a gift of his equity to the community.

As the finding of the trial court that the residence at 133 Hickory Lane is community property is not supported by the evidence, that portion of the judgment awarding each party an undivided one-half interest in the property must be reversed, and the matter must be remanded for further proceedings in order that the proportionate interests of the community and of Edward in the property may be ascertained.

In order to facilitate this determination it is appropriate to comment upon the effect of the expenditure of community funds for the improvement of the property. When community funds are expended for improvement of a husband’s separate property, the community is