Ron J. Anfuso, CPA/ABV, An Accountancy Corporation, was retained by a Family Law attorney on behalf of Jonathan Brown to perform accounting services. Our efforts included, but were not limited to (a) tracing the source, to separate or community property, of funds used to purchase a condominium in South Africa, and to determine the community property pro tanto interest, if any, in the South African property, (b) tracing the source, to separate or community property, of funds used to pay off loans secured by real property, (c) tracing the source, to separate or community property, of funds in various bank or investment accounts of the parties, (d) appraising the value of Respondent’s business interest, and (e) accounting for the parties’ expenditure of community and separate property funds after separation (post-separation accounting).
Jonathan and Joyce Brown were married on February 2, 1988 and separated on July 30, 2011. At the time of the marriage, Jonathan, Petitioner, was 41. Joyce, Respondent, was 29. Jonathan is an internationally known photographer whose work appears in numerous magazines, and Joyce is a graphic designer.
Our Tracing Strategy
We performed two methods of tracing, which we believed would strengthen the likelihood of the court ruling in favor of the most positive outcome for our client. If our primary methodology was not to be adopted, however, an alternative calculation that reflected the minimum separate property that should be allocated to Petitioner would, in all likelihood, be accepted. As the court accepted our primary methodology, the South African property was awarded to the Petitioner free and clear with the fair market value of $1,300,000.
The House in Brentwood
The Brentwood property was gifted to Jonathan (Petitioner) prior to marriage. The property was free and clear. Soon after the parties were married in 1989, the property was transmuted to community property, and Jonathan and Joyce took out a $250,000 loan to remodel the property. Subsequently, the property was refinanced several times. We analyzed the loan history and subsequent refinances, and traced the mortgage payments. It appeared that Petitioner consistently paid all of the mortgage payments during the period from 1989 through 2007, when the mortgage was paid off. From 1989 through 2002, mortgage payments were made through a Petitioner’s primary operating account (Account 2, mentioned in Part 1). This account was commingled. However, based on our detailed tracing of this account related to the South African property through 1994, we established the separate character of the principal payment of $50,000 that was paid down during the first refinance of the Brentwood property. From 2003 until the mortgage was paid off in 2007, payments were made through an account which we completely traced and proved to be a separate property of the Petitioner (Account 1, mentioned in Part 1). Therefore, the principal balance as of 2003 in the amount of $84,000 is another reimbursement to Petitioner under Family Code §2640. As the court accepted our primary tracing methodology related to the South African property, it agreed that the Petitioner was entitled to a reimbursement under Family Code §2640 of the following amounts:
- The value of the property as of the date of transmutation in 1989 ($675,000).
- The paying down of the principal balance in the amount of $50,000 during the first refinance.
- The paying down of the principal balance in the amount of $84,000 for the period 2003 through 2007.
Based on our analysis, total reimbursement to Petitioner under Family Code §2640 amounted to $809,000, plus his 50% share of the remaining community equity in the house of $695,500 ($2,200,000 – $809,000 = 1,391,000/2=$695,000) resulted in total Petitioner’s interest in the Brentwood house of $1,504,500. As these two real properties were the most substantial assets in the case, the Petitioner was satisfied to recover $2.8M from them.