Filed 5/22/20 Marriage of White CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

In re the Marriage of VICTORIA and DAVID A. WHITE.

DAVID A. WHITE,

Respondent,

v.

VICTORIA WHITE,

Appellant.

G056697

(Super. Ct. No. 12D007536)

O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Erick L. Larsh, Judge. Reversed and remanded.

Law Office of Leslie Ellen Shear, Julia C. Shear Kushner and Leslie Ellen Shear for Appellant.

Law Offices of Steven E. Briggs, Steven E. Briggs and Luis A. McKissick for Respondent.

* * *

This appeal is from a judgment dissolving the marriage between David A. White and Victoria White. Victoria appeals from the portion of the judgment characterizing and distributing the parties’ community property. She contends the court mischaracterized a residence, improperly imposed Watts charges, and erred in awarding Epstein credits to David.

With regard to the residence, David had taken a home equity loan on the community residence to fund a down payment on a second residence before the parties separated. Victoria signed an interspousal grant deed to facilitate the transaction. The court upheld that transaction, finding no undue influence. Victoria contends a presumption of undue influence went unrebutted. We agree.

With regard to the Watts charges, in which Victoria was ordered to reimburse the community for her exclusive use of the community residence, we conclude the court acted within its discretion. However, because we have altered the circumstances by awarding a community interest in the second residence, we will remand for the court to exercise its discretion concerning Watts charges in light of the changed circumstances.

Finally, concerning Epstein credits (i.e., expenses David paid post-separation that benefitted Victoria), we conclude the court erred. Most of the credits David claimed were in fact support payments made by agreement of the parties, not the sort of separate property contributions to a community obligation that qualify as Epstein credits. At trial, David tacitly acknowledged as much when his counsel prepared a judgment that altered the court’s description of the reimbursement from Epstein credits to “amounts paid to or for the benefit of [Victoria] in excess of reasonable support.” On appeal, he has abandoned the theory of Epstein credits altogether. We conclude the court had no authority to award reimbursement under the theory it used. We thus reverse that portion of the property division with instructions to determine which of David’s claimed expenses were eligible for reimbursement under Epstein.

FACTS

David and Victoria were married on October 11, 1997. During the marriage, the parties lived a middle-class lifestyle. David worked at The Boeing Company and was the primary bread winner for the family. Victoria was disabled and received a modest income from social security. The parties separated September 30, 2010. David filed the underlying petition in August 2012.

During the marriage the parties lived in a community-property residence on North Bentley Street in the City of Orange (the Bentley residence). Prior to moving out, David purchased a house on Hudson Bay Drive in Anaheim (the Hudson Bay residence). He took title in his name alone, though the funds for the down payment were acquired by refinancing the Bentley residence. Victoria signed an interspousal transfer deed to facilitate the purchase of the Hudson Bay residence. At trial, Victoria testified that she did not know what she was signing and believed the Hudson Bay residence would belong to both of them, but the court found her testimony was not credible. Instead, the court found that “[a]ll transactions regarding the refinance and the purchase of the Hudson Bay home were plain, specific, and in writing . . . .”

Around the time David moved out, he told Victoria he would pay for all of her expenses except for food and gas. Victoria continued to live in the Bentley residence to provide continuity for their daughter, who attended a local high school. Victoria had sole physical custody of their daughter during the dissolution proceedings.

On October 7, 2013, pursuant to the parties’ stipulation, the court ordered David to pay pendente lite spousal support in the amount of $2,974 per month, and child support in the amount of $1,813 per month.

DISCUSSION

The Hudson Bay Property

Victoria first contends the court erred in awarding the Hudson Bay residence to David as his separate property. In particular, she claims that the Hudson Bay residence was purchased using community funds, that the deed she signed was presumptively invalid, and that David failed to rebut that presumption. We agree.

“When an interspousal transaction advantages one spouse, ‘[t]he law, from considerations of public policy, presumes such transactions to have been induced by undue influence.’” (In re Marriage of Haines (1995) 33 Cal.App.4th 277, 293.) To rebut that presumption, the advantaged spouse has the burden of proving, by a preponderance of the evidence, that the transaction “‘was freely and voluntarily made, and with a full knowledge of all the facts, and with a complete understanding of the effect of the transfer.’” (Id. at p. 296.)

Here, there is no real dispute that the transaction advantaged David. He took money out of a community property asset to invest in his own separate property. And, at the time at least, there did not seem to be any agreement to repay the community, much less with interest or anything else that would suggest an equal bargain. However, the court concluded David had satisfied his burden to rebut the presumption of undue influence, commenting “[a]ll transactions regarding the refinance and the purchase of the Hudson Bay home were plain, specific, and in writing . . . .” We review that ruling for substantial evidence. (In re Marriage of Fossum (2011) 192 Cal.App.4th 336, 344.)

Substantial evidence does not support the court’s ruling. The court relied principally on the documentation for the transfer, which, so far as we can tell, was simply an interspousal transfer grant deed. That deed provided, “Grantor, Victoria White, hereby grants to David A. White, a married man as his sole and separate property,” followed by a legal description of the Hudson Bay residence. The deed also said, “This is an Interspousal Transfer and not a change in ownership under §63 of the Revenue and Taxation Code . . . .”

There is a complete dearth of evidence in the record to suggest anyone explained to Victoria what that meant or what exactly she was giving up. She spoke with a loan agent and title agent, but neither of them testified and thus we do not know what they told her. David testified in generalities about his conversations with Victoria regarding the transaction, stating, for example, that he told her the money from the refinance would be used to pay off some of her credit cards and to put a down payment on the Hudson Bay residence. But when asked what else he told her, he demurred, stating, “Again, I wasn’t the one who was leading the conversation. The lender was the one leading the conversation. He was the one with the knowledge and explaining to both of us what was happening.” Victoria, for her part, is a high school graduate but apparently has no further formal education. In short, there is no evidence that anyone explained anything specific to her, and nothing in the record suggests she has the sort of educational or work history to enable her to inform herself about the full legal effect of the transaction.

On this state of the evidence, David did not discharge his fiduciary duty by simply handing Victoria a deed, asking her to sign it, and explaining that he was borrowing money against the Bentley residence to put a down payment on the Hudson Bay residence. At minimum, someone needed to explain to her that she would ordinarily acquire a community property interest in the Hudson Bay residence absent a transmutation, and that she was giving up that interest for free by signing the deed. Since that was not done, and since the Hudson Bay residence was acquired, in part, using community funds, substantial evidence does not support the court’s finding that the Hudson Bay residence was entirely David’s separate property. We will remand the matter for the court to determine the extent of the community’s interest in the Hudson Bay residence.

Watts Charges

“‘Where one spouse has the exclusive use of a community asset during the period between separation and trial, that spouse may be required to compensate the community for the reasonable value of that use.’ [Citation.] The right to such compensation is commonly known as a ‘Watts charge.’ [Citation.] Where the Watts rule applies, the court is ‘obligated either to order reimbursement to the community or to offer an explanation for not doing so.’” (In re Marriage of Falcone & Fyke (2012) 203 Cal.App.4th 964, 978.) “The trial court determines what is due the community ‘after taking into account all the circumstances’ relevant to the exclusive possession by one spouse.” (Id. at p. 979.)

The court awarded Watts charges to David for Victoria’s exclusive use of the Bentley residence post-separation. It awarded $167,633, calculated as $3,050 rental value per month from September 2010 through November 2013 (totaling $122,000) plus $3,150 per month less $2,037 per month mortgage payment paid by Victoria for a net reasonable rental value of $1,113 per month for the period December 2013 through April 2017 (totaling $45,633).

Victoria contends the court abused its discretion by failing to take various factors into account when deciding whether to impose Watts charges at all. However, the court recognized in its statement of decision that it had discretion to award Watts charges. Nevertheless, Victoria contends the court needed to take the following circumstances into consideration: David chose to leave the residence voluntarily, the parties’ only child lived at the Bentley residence with Victoria, David never gave Victoria advance notice that he would seek Watts charges, and David had his own separate property residence.

We find no abuse of discretion. Nothing in the record suggests the court ignored these factors. The court was not required to recite them. Absent evidence to the contrary, we presume the court took all of the evidence into consideration in exercising its discretion. Moreover, those factors, while relevant, did not compel the court to deny Watts charges. Victoria was receiving social security income as well as support payments from David. And because a Watts charge is a reimbursement to the community, she was, in the end, only responsible for half of the reasonable rental value of the property. The other half was, in essence, paid into the community but then paid back out to her. Finally, we note that the default position is that a court will award a Watts charge for exclusive use of community property, and that if it chooses not to, it must justify that decision. The court acted well within its discretion.

Nevertheless, we will remand the matter for the court to reconsider the Watts charges in light of our ruling on the Hudson Bay residence. Because Victoria was not the only party with exclusive use of a community residence, that circumstance may alter the court’s assessment of the circumstances in exercising its discretion. In remanding, we express no opinion on the matter. The court should exercise its discretion in the first instance.

Epstein Credits

An Epstein credit is essentially the flip side of a Watts charge: whereas a party is charged for the exclusive use of a community asset (Watts charge), a party is credited for separate property contributions to a preexisting community obligation (Epstein credit). (Epstein, supra, 24 Cal.3d at p. 84 [“as a general rule, a spouse who, after separation of the parties, uses earnings or other separate funds to pay preexisting community obligations should be reimbursed therefor out of the community property upon dissolution”].) The most common Epstein credit is one party’s payment of the mortgage on a community residence with post-separation income. Because the mortgage is a community obligation, and the post-separation income is separate property, the community is obligated to reimburse the payor spouse, resulting in, essentially, a reimbursement of half of the mortgage payment to the payor spouse.

However, an Epstein credit should not be awarded where the payment “‘constituted in reality a discharge of the paying spouse’s duty to support the other spouse or a dependent child of the parties. Both spouses have a duty to support their dependent children. [Citation.] Similarly, the spouses owe to each other mutual duties of support. [Citation.] Following separation, the preferred source for payment of support is the separate property of the supporting spouse that would have been community property if the spouses were not separated. [Citation.] Payment of a debt, of course, may constitute payment of spousal or child support. [Citations.] When in fact it does, reimbursement is inappropriate.’” (Epstein, supra, 24 Cal.3d at p. 85.)

Procedurally, the award of Epstein credits here took a rather odd turn. At trial, David claimed Epstein credits for each of the expenses listed on a spreadsheet introduced as exhibit 23. That exhibit lists a large number of expenses paid by David, including utilities, vehicle-related expenses, medical expenses, schooling for the children, housing-related expenses (mortgage, insurance, HOA, property taxes), credit card payments, and other miscellaneous expenses. Each category is broken down by month and year starting from September of 2010 through September 2015. At trial, David’s counsel explained that the amounts listed for each year needed to be reduced by the post-tax value of the support order the court entered in September 2013, which amounted to $3,350 per month after taxes. After deducting that amount for each year of support, the total amount of credits David sought was $74,262. Most of that is from years 2010 through 2013, prior to the court’s support order (at which point he started paying support and stopped paying most expenses).

In its statement of decision, the court characterized the expenses listed in exhibit 23 as Epstein credits and awarded the full amount sought by David. It did not divide that amount in half to reflect that the community benefits from Epstein credits, not just Victoria. (In re Marriage of Jeffries (1991) 228 Cal.App.3d 548, 553 [“It is important to note that both ‘Epstein credits’ and ‘Watts charges’ are, respectively, to be paid from or paid to the community”].) And so far as we can tell, the amounts listed in exhibit 23 are the full amount of the expenses. Naturally, Victoria objected.

In the subsequent judgment, which was prepared by David’s counsel, the court recharacterized the Epstein credits as “amounts paid to or for the benefit of [Victoria] in excess of reasonable support.” There was no hearing at which this change was discussed, nor any comment on it from the court. Nor did the court cite any authority to support such a characterization.

On appeal, David has abandoned the theory that his claimed expenses can be reimbursed as Epstein credits, and instead relies on the theory that they are support payments in excess of reasonable support. The only authority he cites to justify a recovery of such expenses, however, is Family Code section 3653 and caselaw interpreting the same. Family Code section 3653 permits a court to adjust a support order retroactively (id., subd. (a)), and further permits a court to require the payee to repay amounts of support in excess of the retroactive support order (id., subd. (d)).

That statute has no application here: The court never retroactively altered a support order. Moreover, the credits David claims go back to 2010—almost two years before the underlying petition was filed. We are not aware of any authority that would confer jurisdiction on a court to determine support obligations prior to the initial pleading. (See Fam. Code, § 4009 [child support order may be made retroactive to the date of the initial pleading]; In re Marriage of Dick (1993) 15 Cal.App.4th 144, 165-166 [pendente lite spousal support may be awarded retroactively to the initial pleading].) Further, even if the court could reimburse support payments made in excess of reasonable support obligations prior to the underlying petition, as a factual matter, the court never made that inquiry. It never attempted to determine what the appropriate amount of support was in 2010, 2011, 2012, or most of 2013. To make matters worse, Victoria had no opportunity to respond to this change in legal theory. The court erred.

It seems clear from the evidence that David and Victoria came to their own agreement regarding support in the aftermath of their separation. David testified that when he first broke the news to Victoria that he intended to separate, he “explained that [he] would continue to support all the bills at the house—at the Bentley house.” He went on to testify that he discussed with her the “details of the finances,” specifically: “I told her I would pay everything except for the food that they purchased and the gas that she put in the car.” There is no authority for the court to retroactively interfere in that arrangement. And to do so would be unfair under the circumstances. Victoria could not have known that the court, seven years later, would prescribe a particular amount of support for her, and thus she had no opportunity to adjust her lifestyle to fit that amount of support. (See Epstein, supra, 24 Cal.3d at p. 84 [“‘Reimbursement should not be ordered if payment was made under circumstances in which it would have been unreasonable to expect reimbursement, for example, where there was an agreement between the parties the payment would not be reimbursed or where the paying spouse truly intended the payment to constitute a gift’”].)

Nevertheless, it does seem clear from exhibit 23 that some of the expenses listed are, at least arguably, true Epstein credits. For example, David includes mortgage payments and payments on a community vehicle used by Victoria. We deem it appropriate to remand the matter for the court to determine in the first instance which expenses potentially qualify as true Epstein credits (i.e., payments made with separate-property funds to satisfy a preexisting community obligation or enhance a community asset). The court should then exercise its discretion in determining whether to award a credit, consistent with the guidelines set forth in Epstein, supra, 24 Cal.3d. 76.

DISPOSITION

The judgment is reversed and the matter remanded with directions to: (1) consistently with this opinion determine the extent of the community’s interest in the Hudson Bay residence instead of simply charging David with the receipt of community funds for the down payment; (2) reconsider whether to award Watts charges in light of this opinion and the court’s determination of the community’s interest in the Hudson Bay residence, and if so the amount of the Watts charges; (3) consistently with this opinion determine which expenses listed on exhibit 23 qualify as true Epstein credits and to exercise the court’s discretion as to whether to award the Epstein credits; and (4) adjust the marital balance sheet and any equalization payments to account for the court’s rulings on the first three tasks. Victoria shall recover her costs incurred on appeal.

IKOLA, ACTING P. J.

WE CONCUR:

THOMPSON, J.

GOETHALS, J.