California Fourth Appellate District Division Three
Presented by Ron J. Anfuso, CPA, ABV, CFF, CDFA, FABFA
Ron’s Corner
The disputed decision by the family court in the Freeman case discussed here concerning the interest and value of the parties’ home, referred to as the Micheltorena property, was appealed by Hub Alan Freeman. His contention was based on what he believed was a misinterpretation ofa precedent established in the case of Mohler (In re Marriage of Mohler (2020) 47 Cal.App.5th 790-791), which was based on a Moore/Marsden analysis. I know the Mohler case well, having acted as expert to the respondent and appellant in that case. Thus, I misjudgment was obvious to me.
The family court in the Freeman case did err in its ruling concerning interest in the property. Thus, the appellant court correctly reversed this decision and held that the community’s interest in the home stopped accruing after separation. The Moore/Marsden rule was founded on the conception that community property is being ‘”invested” in the separate property by creating equity in it. Thus, during a marriage, only the portion of community assets that is used to pay off loan principal is relevant to establishing the community interest in the property. After separation, however, the earnings and accumulations of a spouse are that spouse’s separate property.
In Mohler, the husband bought a home in 1995, and they married in 1998. The couple lived in the home until their separation in 2011. After separating, the wife moved out, and the husband lived in the home for over six years until the couple’s dissolution trial in 2017. The couple agreed on the percentage interest in the property at the time of separation. However, at trial, the wife argued that the community’s interest in the home continued to accrue after separation. The family court accepted the wife’s calculation.
The appealing panel found that the trial court was correct to value the property as of the date of trial but held that the community’s interest in the home stopped accruing after separation per Moore/Marsden.
If you have questions concerning the appellant court’s reversal, I welcome you to contact me.
Ron
Background
Appellant Hub Alan Freeman and respondent Rod Alan Freeman were domestic partners and then spouses for over 15 years before separating. After their marital dissolution trial, the family court found the community had a 60.2 percent interest in a rental property that Hub had purchased prior to their domestic partnership.
Hub’s contention arose from a misunderstanding of Moore/Marsden. Under Moore/Marsden, the community acquires a “pro tanto interest in a party’s separate property” when community property is used to reduce the principal balance of a mortgage on the property. (Bono v. Clark (2002) 103 Cal.App4th 1409, 1421-1422.) Once the community’s pro tanto percentage interest is calculated, it is multiplied by the total value of the property to determine the dollar value of the community’s interest. This case was published to clarify how the community’s pro tanto percentage interest and the value of the property in question were properly determined.
Rod and Hub Freeman registered as domestic partners in December 2004 and married in June 2008. They separated in April 2020. Rod filed a petition for dissolution of the domestic partnership and marriage in May 2020.
At the time of separation, the parties had ownership interests in two properties. The first was a residence in Indio, which listed Hub and Rod as owners. The second was a rental property on Micheltorena Street in Los Angeles. Title to the Micheltorena property was solely in Hub’s name. Hub had purchased the property in 1992 prior to the party’s union, but it was not paid off until 2013. Following their separation, the parties agreed the community had an interest in the Micheltorena property. However, they disagreed on the amount of that interest and the property’s value.
By the time of their separation, Hub and Rod had both been unemployed for about seven years. The family court entered a status-only judgment in January 2023 dissolving the parties’ marriage and domestic partnership. Hub was to pay Rod the value of the community’s interest in the Micheltorena property.
The family court calculated the community’s interest in the Micheltorena property under the Moore/Marsden rule. The court concluded that all payments made during the legal union of the parties were made with community property. It adopted the findings of Rod’s expert, who calculated a 60.2 percent community interest in the Micheltorena property based on the amount of principal paid and improvements made during the parties’ relationship.
Following the trial, the family court issued a statement of decision with the above findings. Hub objected to the findings, but the court issued a property division order overruling his objections and declaring the statement of decision as the court’s final decision on these issues.
The Appeal
Hub appealed the property division order on the grounds that the court improperly calculated the Micheltorena property’s value. He maintained that the court inappropriately valued the property close to the time of trial rather than the time of separation. Specifically, the court valued the Micheltorena property based on the testimony of Rod’s expert, who valued the property at $2.1 million as of February 2022. In contrast, one of Hub’s appraisers valued the property at $1.4 million as of January 2021. Hub appeared to contend that the court should have relied on this valuation because it was calculated closer to the separation date, April 2020, while Hub’s expert was calculated closer to trial, which began in November 2022.
There were two important concepts that Hub appeared to have conflated. The first is the community’s pro tanto ownership interest in the Micheltorena property. Generally, this percentage interest is found by dividing the amount by which community property payments reduced the principal by the purchase price. (In re Marriage of Moore, supra, 28 Cal.3d at pp. 373-374.)
The family court found the community had a 60.2 percent interest in the Micheltorena property, while Hub had a 39.8 percent separate interest.
Hub challenged the family court’s valuation of the Micheltorena property, which he considered was based on Mohler (In re Marriage of Mohler (2020) 47 Cal.App.5th 788 (Mohler)). He contended that the court should have used Hub’s expert’s valuation because it was calculated closer to the time of separation. However, Hub misread Mohler because the relevant holding in Mohler concerns the community’s interest in a property, not the property’s value. Thus, the appellate court agreed that the property was worth $2.1 million as of February 2022.
The appellate court reversed the family court’s decision. It held the community’s interest in the home stopped accruing after separation. (Mohler, supra, 47 Cal.App.5th at pp. 790–791.) The court further explained that the Moore/Marsden rule “is founded on a conception that community property is being ‘invested’ in the separate property by creating equity in it. Thus, during marriage, only the portion of community assets that is used to pay off loan principal is relevant to establishing the community interest in the property. After separation, however, the earnings and accumulations of the spouse are that spouse’s separate property.” (Id. at pp. 794–795.)
As to the home’s valuation, the appellate court found the trial court was correct to value the property as of the trial date. “When the trial court determines the value of the community’s property interest in a residence, the property is to be valued as of the date of trial, not as of the date of the parties’ separation. Prior to a dissolution trial, a party may provide notice that, for equitable reasons, it seeks to value the property as of an earlier date that is after the separation. However, neither the husband nor [the wife] sought the use of an earlier date here.” (Mohler, supra, 47 Cal.App.5th at p. 794, second and third italics added.)
Mohler’s ruling concerning the home’s valuation was based on section 2552. Under section 2552, subdivision (a), “when dividing the community estate upon marital dissolution or legal separation, except as provided in subdivision (b), the court shall value the assets and liabilities as near as practical to the time of trial.” Section 2552, subdivision (b) then states that “on 30 days’ notice by the moving party to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish equal division of the community estate of the parties in an equitable manner.” Like Mohler, other cases have found that section 2552 applies when valuing a property for purposes of a Moore/Marsden calculation. (See, e.g., In re Marriage of Sherman (2005) 133 Cal.App.4th 795, 802 [“Under section 2552”]. The trial court should have valued the residence as close to the date of trial as possible in determining the community’s pro tanto interest.
Here, Hub’s argument concerns the value of the Micheltorena property. As such, the family court did not err by valuing the property closer to the trial date instead of the separation date. Hub did not argue that the court improperly calculated the community’s interest in the Micheltorena property, so the appellate court did not review this issue.
