In Re Marriage of Frick
1986 Cal. App. LEXIS 1670, 181 Cal. App. 3d 997, 226 Cal. Rptr. 766 (1986)
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Rule of Law:
When calculating the community's pro tanto interest in a spouse's separate property that appreciated during marriage, the respective percentage interests are determined based on the ratio of capital contributions to the property's original purchase price, not its fair market value at the time of marriage.
Facts:
- Jerome Frick owned the Mikado Hotel and Restaurant, including the real property it was located on, as his separate property before his marriage to Hiroko Frick.
- Jerome and Hiroko married on November 23, 1971.
- During the marriage, community funds were used to make principal payments on the loan encumbering Jerome's separate real property.
- The real property had appreciated in value before the marriage and continued to appreciate during the marriage.
- In 1978, Jerome incorporated the business and began paying rent from the corporation to himself.
- Jerome deposited this rental income (separate property) into a personal bank account that also received his salary (community property).
- From this commingled bank account, Jerome made the loan payments on the real property.
- Jerome and Hiroko separated on January 29, 1982.
Procedural Posture:
- Jerome Frick filed a petition for dissolution of his marriage to Hiroko Frick in the trial court.
- After a bench trial, the trial court issued a statement of decision and an interlocutory judgment of dissolution, dividing the parties' property.
- The trial court applied the Marsden formula to calculate the community and separate property interests in the Mikado real property.
- Jerome Frick's motion for a new trial was denied by the trial court.
- Jerome Frick, as appellant, filed a notice of appeal from the trial court's judgment.
- Hiroko Frick, as cross-appellant, filed a notice of cross-appeal.
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Issue:
When apportioning the appreciation of a spouse's separate real property that was paid down with community funds during the marriage, does the law require that the community's pro tanto interest be calculated based on the property's fair market value at the time of marriage, rather than its original purchase price?
Opinions:
Majority - Johnson, J.
No. When apportioning appreciation in separate property, the community's pro tanto interest is calculated based on the property's original purchase price, not its fair market value at the time of marriage. The court applied the formula from In re Marriage of Moore and In re Marriage of Marsden, which gives the community a property interest in the ratio that payments made with community funds bear to the total payments made toward the purchase price. The court reasoned that the separate property owner is already credited with all pre-marriage appreciation. To then use the appreciated value at the time of marriage as the basis for calculating the percentage shares of later appreciation would give the owner 'double credit' for that pre-marital appreciation, which fails the test of 'fundamental fairness.' The community should share in the appreciation that accrues during marriage in the same proportion that its capital contribution bears to the total capital contribution required to own the property.
Analysis:
This case solidifies and clarifies the application of the Moore/Marsden formula for apportioning community and separate property interests in an asset owned by one spouse before marriage. It establishes that pre-marital appreciation belongs entirely to the separate property spouse but cannot be used to dilute the community's percentage share of the appreciation that occurs during the marriage. The decision also reinforces the high burden of proof on a spouse attempting to trace funds from a commingled account to a separate property source, emphasizing the need for meticulous record-keeping to overcome the presumption that funds from such an account are community property.
