Marriage of Cuk CA4/3 ( 2016 )

Filed 6/27/16 Marriage of Cuk CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
In re Marriage of SLOBODAN and
DRAGANA VERA CUK.
SLOBODAN CUK,
G050229
Respondent,
(Super. Ct. No. 04D008550)
v.
OPINION
DRAGANA VERA CUK,
Appellant.
Appeal from a judgment of the Superior Court of Orange County, Kim
Garlin Dunning, Judge. Affirmed.
Law Offices of Lillian Tomich and Lillian Tomich for Appellant.
No appearance by Respondent.
* * *
Appellant Dragana Vera Cuk (Dragana) appeals from the judgment
dividing the community property estate following her 18-month marriage to respondent
Slobodan Cuk (Slobodan).1 Her challenges to the judgment focus on the trial court’s
ruling regarding a $2 million home the couple purchased just two weeks before they
separated.
The trial court found the home was community property because the couple
purchased it during the marriage and took title as joint tenants. Nonetheless, the court
confirmed the home as Slobodan’s separate property in dividing the community estate
because the court found Slobodan paid the entire $545,000 down payment with his
separate property, Family Code section 2640 granted Slobodan the right to be reimbursed
for that payment before dividing any community property interest, and after deducting
Slobodan’s reimbursement the value of the home was less than the outstanding balance
on the interest only, amortizing loan the couple used to purchase the home.2
The trial court declined to assess any so-called “Watts charges,” which
would have required Slobodan to compensate the community for the reasonable value of
his exclusive use of the home between the couple’s separation and the trial. The court
found it was not equitable to impose the charges based on the totality of the
circumstances, including the timing of the purchase, Slobodan’s use of his separate
property to pay the down payment and all other payments and expenses relating to the
home, and the community’s lack of any financial interest in the home.
Dragana contends the trial court erred in finding Slobodan paid the entire
down payment with his separate property. In her view, the weight of the evidence
1
For clarity, “we refer to the parties by their first names, as a convenience to
the reader. We do not intend this informality to reflect a lack of respect.” (In re
Marriage of Balcof (2006) 141 Cal. App. 4th 1509, 1513, fn. 2.)
2
All statutory references are to the Family Code.
2
showed Slobodan paid part of the down payment with his community property earnings.
Dragana, however, forfeited this issue because she failed to summarize the evidence that
supports the judgment and failed to explain why that evidence was insufficient. Instead,
Dragana limited her argument to the evidence she thought supported her position. In any
event, substantial evidence supports the trial court’s judgment.
Next, Dragana contends the trial court erred in valuing the home at
$2,014,527. According to Dragana, the testimony of her experts established the home’s
value was between $2.35 and $2.4 million, and the lesser valuation by Slobodan’s expert
lacked credibility. This argument amounts to little more than an improper request that we
reweigh the evidence on appeal. This we may not do. The trial court acted well within
its discretion by valuing the property based on the testimony of all the experts.
Finally, Dragana contends the trial court erred by declining to assess Watts
charges against Slobodan because Slobodan stipulated he would not seek reimbursement
for the separate property payments he made on the home after the couple’s separation,
and therefore there was no basis for the court to refuse to assess Watts charges. We
disagree. As explained below, the court’s decision was well within its discretion based
on the totality of the circumstances, and we may not substitute our judgment for that of
the trial court.
We affirm the trial court’s judgment in its entirety.
I
FACTS AND PROCEDURAL HISTORY
Slobodan is an engineer and businessman who designs and manufactures
power converters and power supplies. He holds several patents and is the sole
shareholder in several companies he founded to market his services and products,
including Optimum Power Conversion, Inc., doing business as TeslaCo (TeslaCo).
3
Slobodan lives and works in Orange County, California. Dragana was a journalist and
television personality in her native Serbia. She is nearly 20 years younger than Slobodan.
The couple met at a Serbian state dinner in April 2001, where Dragana
interviewed Slobodan for a Serbian newspaper. After Slobodan returned to California, a
courtship developed as the two began to correspond through e-mails and phone calls.
Slobodan returned to Serbia several times to visit Dragana. In December 2002, Dragana
came to the United States on a journalist visa and the two began living together. The
couple married in February 2003.
At the end of July 2004, the couple purchased a home in Laguna Niguel,
California, but they separated two weeks later. Shortly after their separation, Slobodan
filed a petition accusing Dragana of domestic violence and the court issued a temporary
restraining order requiring her to keep away from Slobodan and the house they
purchased. A month later, Slobodan filed this action to annul their marriage, or
alternatively to dissolve it.
In October 2004, the couple entered into a stipulation and order to resolve
the domestic violence allegations and issues related to the home. Slobodan agreed to
dismiss his domestic violence petition and they both agreed to a mutual, nonviolent
contact order requiring them to stay at least 100 yards away from each other. The two
further agreed Slobodan would have “exclusive use, control and occupancy” of the
Laguna Niguel home and he “shall be responsible for all mortgage payments, property
taxes, insurance, home association dues, maintenance and any other costs relating to this
property. [Dragana] shall still retain any and all community property interests, if any, to
this property as determined by the court. [Slobodan] shall not be entitled to any
community property reimbursement from [Dragana] for the payments, expenses, or costs
expended by [Slobodan] while having the exclusive use, control, and occupancy of the
home.”
4
In late 2006, the court conducted a trial on Slobodan’s request to annul the
marriage. The court denied the request and later entered a judgment dissolving the
couple’s marriage. At a later trial on reserved property division issues, the couple
stipulated (1) a $17,000 retirement account Slobodan owned was community property
and should be divided evenly; (2) TeslaCo was Slobodan’s separate property; (3) the
couple purchased the Laguna Niguel home for $2 million approximately two weeks
before they separated and title to the home was taken in both spouses’ names; (4) the
couple paid $545,000 into escrow as the down payment for the home and $400,000 of
that sum came from a separate property retirement account Slobodan cashed out;3
(5) Slobodan exclusively resided in the home following the couple’s separation and he
paid all house payments, taxes, and related expenses; and (6) Slobodan “stipulated to a
waiver of Epstein credits relative to ongoing . . . expenses [for the home].”
After trial, the court issued a statement of decision finding the Laguna
Niguel home was a community property asset because the couple purchased the home
during their marriage and took title as joint tenants. The court valued the home at
$2,014,527 and confirmed it as Slobodan’s separate property because the court found
Slobodan paid the entire $545,000 down payment with his separate property, section
2640 entitled Slobodan to be reimbursed for that payment before any community
property interest in the home was divided, and that reimbursement was greater than the
community’s equity in the home based on the $1,590,000 balance due on the interest
only, amortizing mortgage. Finally, the court found the totality of the circumstances did
not justify assessing Watts charges against Slobodan to reimburse the community for his
3
At the close of escrow, the escrow company issued an $11,680 refund to
Slobodan and Dragana that Slobodan apparently kept for himself. The parties raise no
issue regarding the refund.
5
exclusive use of the community property home during the period between the couple’s
separation and the trial.4
After the trial court entered judgment, this appeal followed.
II
DISCUSSION
A. Dragana Failed to Show the Trial Court Erred in Characterizing the Entire Down
Payment as Slobodan’s Separate Property
Dragana contends the trial court erred in finding the disputed $145,000
portion of the down payment was Slobodan’s separate property. According to Dragana,
the weight of the evidence established these funds were community property earnings,
and therefore Slobodan had no right to a $145,000 reimbursement under section 2640.
We disagree.
A spouse has a statutory right to reimbursement for contributions to the
acquisition or improvement of a community property asset if the spouse traces the
contributions to a separate property source. (§ 2640, subd. (b); In re Marriage of
Cochran (2001) 87 Cal. App. 4th 1050, 1056-1057.) The reimbursement must be paid
before the court divides any community property interest in the asset. (In re Marriage of
Geraci (2006) 144 Cal. App. 4th 1278, 1286; Hogoboom & King, Cal. Practice Guide:
Family Law (The Rutter Group 2015) ¶ 8:467, p. 8-172 [“A § 2640 reimbursement award
comes off the top of the community property item(s) in question before the C[ommunity]
P[roperty] interest in that property is divided”].) “If there is insufficient equity at the
time of dissolution in the property to which the contribution was made to fully reimburse
the contribution, the entire asset is awarded to the contributing spouse.” (In re Marriage
4
The trial court made rulings about various property items other than the
Laguna Niguel home, but Dragana only challenges the rulings relating to the home. We
therefore do not address any of the other rulings.
6
of Walrath (1998) 17 Cal. 4th 907, 913; see Geraci, at p. 1286.) “Whether the spouse
claiming a separate property interest has adequately met his or her burden of tracing to a
separate property source is a question of fact and the trial court’s holding on the matter
must be upheld if supported by substantial evidence.” (Cochran, at pp. 1057-1058;
see In re Marriage of Braud (1996) 45 Cal. App. 4th 797, 823 (Braud).)
Here, the trial court found Slobodan adequately traced the disputed
$145,000 to separate property sources, and therefore he was entitled to a reimbursement
of those funds under section 2640. The court found the evidence was “overwhelming”
that $66,000 of these disputed funds came from a separate property Merrill Lynch
retirement account that Slobodan cashed out, deposited with TeslaCo, and then
transferred to the couple’s joint checking account for use toward the down payment. As
for the remaining $79,000, the trial court found TeslaCo loaned these funds to Slobodan
as his separate property, which he used as part of the down payment.
According to Dragana, these transfers from TeslaCo to Slobodan were
community property profit distributions rather than separate property loans or transfers
because they roughly coincided with TeslaCo receiving about $182,000 in profits.
Dragana asserts TeslaCo’s records failed to adequately establish a valid loan to Slobodan
because no promissory note or other document recorded the terms of the loan, no minutes
or board resolutions approved the loan, and no record existed showing Slobodan made
any loan payments. Based on her expert’s analysis, Dragana contends these profits were
community property earnings based on Slobodan’s work and efforts during the marriage
because TeslaCo’s records showed a dramatic change in the nature of the company’s
earnings that roughly coincided with the couple’s wedding. In Dragana’s view, TeslaCo
originally derived most of its earnings from licensing fees based on patents Slobodan had
developed before marrying Dragana, but that revenue stream dried up around the time of
their wedding as the licensing agreements and patents expired. She contends TeslaCo’s
7
increased earnings resulted from product development fees Slobodan generated during
the marriage when he designed and developed products for other companies.5
The trial court rejected this argument because the court “[did] not find the
testimony of [Dragana’s] expert, Jamie Holmes, to be credible or persuasive on this
point.” As the court explained in its statement of decision, “The information upon which
Mr. Holmes based his opinions was susceptible of several interpretations. The evidence
upon which [Dragana] relied to demonstrate that profits or income to TeslaCo were the
result of [Slobodan’s] participation in the business and his own efforts did not reasonably
support the expert’s conclusions. During the parties’ marriage, [Slobodan] received
approximately $18,000 per month in salary from TeslaCo. His salary was, of course,
community property and used to support the parties during their 18-month marriage. . . .
[¶] Weighing the evidence, the court is persuaded the final $79,000 for the . . . down
payment represented a loan from TeslaCo to [Slobodan] and constitutes [Slobodan’s]
separate property.”
Dragana insists the trial court erred and the evidence she presented required
the court to conclude the disputed portion of the down payment came from a community
property source. In essence, she asks us to reweigh the evidence and reject the trial
court’s assessment of the witnesses’ credibility. In doing so, Dragana fails to
acknowledge the heavy burden the governing substantial evidence standard of review
placed on her as the appellant, and the limits that standard places on us in reviewing the
trial court’s judgment.
5
Dragana acknowledges the $66,000 from the Merrill Lynch account was
Slobodan’s separate property and that it was deposited with TeslaCo shortly before
Slobodan made the down payment. She nonetheless argues that money was used to pay
down previous loans TeslaCo made to Slobodan, and therefore all funds used to make the
down payment were community property earnings.
8
“‘The gist of the “substantial evidence” rule is: [¶] “When a trial court’s
factual determination is attacked on the ground that there is no substantial evidence to
sustain it, the power of an appellate court begins and ends with the determination as to
whether, on the entire record, there is substantial evidence, contradicted or
uncontradicted, which will support the determination. . . .” [Citations.] [¶] ‘So long as
there is “substantial evidence,” the appellate court must affirm . . . even if the reviewing
justices personally would have ruled differently had they presided over the proceedings
below, and even if other substantial evidence would have supported a different result.
Stated another way, when there is substantial evidence in support of the trial court’s
decision, the reviewing court has no power to substitute its deductions.’” (Rupf v. Yan
(2000) 85 Cal. App. 4th 411, 429-430, fn. 5; see Pope v. Babick (2014) 229 Cal. App. 4th
1238, 1245 [“We do not review the evidence to see if there is substantial evidence to
support the losing party’s version of events, but only to see if substantial evidence exists
to support the verdict in favor of the prevailing party”].)
“‘We must therefore view the evidence in the light most favorable to the
prevailing party, giving it the benefit of every reasonable inference and resolving all
conflicts in its favor. . . .’” (Bickel v. City of Piedmont (1997) 16 Cal. 4th 1040, 1053,
abrogated by statute on another point in DeBerard Properties, Ltd. v. Lim (1999)
20 Cal. 4th 659, 668-669.) “‘It is axiomatic that an appellate court defers to the trier of
fact on such determinations, and has no power to judge the effect or value of, or to weigh
the evidence; to consider the credibility of witnesses; or to resolve conflicts in, or make
inferences or deductions from the evidence.’” (WorldMark, The Club v. Wyndham
Resort Development Corp. (2010) 187 Cal. App. 4th 1017, 1029.) “[E]ven if the judgment
of the trial court is against the weight of the evidence, we are bound to uphold it so long
as the record is free from prejudicial error and the judgment is supported by evidence
which is ‘substantial,’ that is, of ‘“ponderable legal significance,”’ ‘“reasonable in nature,
9
credible, and of solid value. . . .”’” (Howard v. Owens Corning (1999) 72 Cal. App. 4th
621, 631.)
“An appellant challenging the sufficiency of the evidence to support the
judgment must cite the evidence in the record supporting the judgment and explain why
such evidence is insufficient as a matter of law. [Citations.] An appellant who fails to
cite and discuss the evidence supporting the judgment cannot demonstrate that such
evidence is insufficient. The fact that there was substantial evidence in the record to
support a contrary finding does not compel the conclusion that there was no substantial
evidence to support the judgment. An appellant . . . who cites and discusses only
evidence in her favor fails to demonstrate any error and waives the contention that the
evidence is insufficient to support the judgment.” (Rayii v. Garcia (2013)
218 Cal. App. 4th 1402, 1408; see Arechiga v. Dolores Press, Inc. (2011) 192 Cal. App. 4th
567, 572, overturned by statute on other grounds, Stats. 2012, ch. 820, § 1, p. 6511.)
Dragana forfeited her challenge to the sufficiency of the evidence because
she flatly ignores the evidence Slobodan presented to support his separate property claim
and provides no explanation why this evidence fails to support the trial court’s judgment.
Instead, Dragana focuses on her expert’s testimony and points to various exhibits she
contends support her expert’s conclusions without even acknowledging Slobodan’s
evidence, which included his own testimony, the testimony of his and TeslaCo’s certified
public accountant, and the exhibits he submitted.6
6
We note Dragana also forfeited her substantial evidence challenge to the
trial court’s judgment because she failed to provide an adequate record. For example, the
record she designated includes all of her exhibits that were admitted at trial, but only one
of Slobodan’s several exhibits. As the appellant, Dragana bore the burden to provide an
adequate record to review the sufficiency of the evidence to support the trial court’s
judgment. (Oliveira v. Kiesler (2012) 206 Cal. App. 4th 1349, 1362; see Foust v. San Jose
Construction Co., Inc. (2011) 198 Cal. App. 4th 181, 187 [“‘“if the record is inadequate
for meaningful review, the appellant defaults and the decision of the trial court should be
affirmed”’”]; Osgood v. Landon (2005) 127 Cal. App. 4th 425, 435 [“‘a record is
inadequate, and appellant defaults, if the appellant predicates error only on the part of the
10
For example, Dragana fails to address Slobodan’s testimony about cashing
out his Merrill Lynch account, depositing that money with TeslaCo, and then promptly
transferring it to the couple’s joint checking account for use toward the down payment.
She also ignores Slobodan’s testimony that he borrowed other funds for the down
payment from TeslaCo, the work he performed for TeslaCo during the marriage, and the
salary TeslaCo paid him for that work. Also unmentioned in Dragana’s brief is the
certified public accountant’s testimony about TeslaCo’s loans to Slobodan, and the
accountant’s testimony that he categorized most of TeslaCo’s income during the marriage
as product development income because he faced a deadline for filing the company’s
taxes and he could not get Slobodan to provide the necessary details about the income to
categorize it. According to the accountant, the taxing authorities were not concerned
about the particular type of income as long as the company reported the income, and
therefore the accountant simply identified unknown sources of income as product
development income. Finally, Dragana does not identify or address any of the exhibits
Slobodan submitted to support his tracing, including wire transfer receipts,
documentation regarding his withdrawal from Merrill Lynch, and various other banking
records.
Although Dragana forfeited her challenge to the sufficiency of the
evidence, we conclude that challenge also fails on the merits because substantial evidence
supports the trial court’s judgment the entire down payment was made with Slobodan’s
separate property.
record he provides the trial court, but ignores or does not present to the appellate court
portions of the proceedings below which may provide grounds upon which the decision
of the trial court could be affirmed’”].)
11
B. Substantial Evidence Supports the Trial Court’s Valuation of the Laguna Niguel
Home
Dragana contends the trial court erred by undervaluing the Laguna Niguel
home, and then concluding the community had no equity in the home because the sum of
the outstanding balance on the mortgage and Slobodan’s section 2640 reimbursement
claim exceeded the court’s valuation. According to Dragana, the evidence supported a
valuation between $2.35 and $2.4 million rather than the court’s $2,014,527 valuation.
We reject the claim because it is nothing more than an improper attempt to reargue the
evidence on appeal.
In dividing the community estate, the trial court has “the responsibility to
fix the value of assets and liabilities in order to accomplish an equal division.” (In re
Marriage of Duncan (2001) 90 Cal. App. 4th 617, 631 (Duncan).) “‘The trial court
possesses broad discretion to determine the value of community assets as long as its
determination is within the range of the evidence presented. [Citation.] The valuation of
a particular asset is a factual question for the trial court, and its determination will be
upheld on appeal if supported by substantial evidence in the record.’” (In re Marriage of
Iredale & Cates (2004) 121 Cal. App. 4th 321, 329; Duncan, at p. 632 [“The trial court’s
determination of the value of a particular asset is a factual one and as long as that
determination is within the range of the evidence presented, we will uphold it on
appeal”].)
“In the exercise of its broad discretion, the trial court ‘makes an
independent determination of value based upon the evidence presented on the factors to
be considered and the weight given to each. The trial court is not required to accept the
opinion of any expert as to the value of an asset.’ [Citations.] Differences between the
experts’ opinions go to the weight of the evidence. [Citation.] Rather, the court must
determine which of the recognized valuation approaches will most effectively achieve
substantial justice between the parties.” (Duncan, supra, 90 Cal.App.4th at p. 632.)
12
“‘[R]esolution of conflicts in the evidence, assessment of the credibility of the witnesses
and the weight to be given the opinions of the experts [a]re all matters within the
exclusive province of the [trial court as the] trier of fact.” (In re Marriage of Ackerman
(2006) 146 Cal. App. 4th 191, 204.)
Here, the couple’s Laguna Niguel home was more than 4,800 square feet
and sat on a lot that exceeded 11,000 square feet. The home had a large spa with “‘city
lights’” and canyon views, and it was across the street from similar homes with
unobstructed ocean views. Slobodan’s expert appraiser valued the home at $1.7 million
based on his analysis of comparable homes in the same development and the nearby area.
Dragana’s expert appraiser valued the home at $2.2 million a few months before trial
based on comparable sales in the area, and also testified the home likely was worth
between $2.4 and $2.45 million at the time of trial because the real estate market in the
Laguna Niguel area showed significant improvement since the expert had performed his
earlier appraisal. Dragana also presented testimony from a real estate broker who
testified she would list the home at $2.45 million and expect it to sell for $2.35 million
based on the recent sale of the home across the street and the steadily increasing real
estate market in the area.
The trial court considered all of these valuations on a price per square foot
basis, noting Slobodan’s appraiser valued the home at $351 per square foot, Dragana’s
appraiser valued it at $455 per square foot, and Dragana’s broker valued the home at
$497 per square foot. The court also noted the various appraisal reports identified
comparable homes in the same development with pools, spas, and unobstructed ocean
views recently sold for $458 and $476 per square foot, and that other homes with views
similar to the couple’s home, but on smaller lots and without a pool or spa recently sold
for $358 and $383 per square foot. Based on these valuations and sales, the home’s
specific characteristics, and the home’s condition, which included “a fair amount of
13
deferred maintenance,” the court determined the home had a value of “no more than $417
per square foot, or $2,014,527.”
We conclude substantial evidence supports the trial court’s conclusion
because it falls well within the range of the valuations the parties presented and
demonstrates the court carefully considered the home’s specific features and its condition
in comparison to the other homes the experts considered in providing their valuations.
Dragana attacks the appraisal performed by Slobodan’s appraiser, arguing he failed to
consider the rapidly rising market and relied on other sales that were too remote in time
and involved dissimilar homes. But Slobodan’s appraiser adjusted the price of the
comparable sales to account for both when the sale of the comparable homes occurred
and the individual features of the homes. More importantly, Dragana fails to recognize
the trial court did not simply adopt the valuation offered by Slobodan’s appraiser.
Rather, the trial court considered the valuation testimony by all experts and the sale
prices for the other homes those experts identified to independently arrive at the court’s
own valuation. The trial court properly exercised its discretion and we decline Dragana’s
invitation to intrude upon the trial court’s exclusive province by reweighing the evidence.
(See In re Marriage of Bergman (1985) 168 Cal. App. 3d 742, 754 [upholding trial court’s
independent valuation because the record revealed “[t]he court rejected the opinion of
each expert . . . but nonetheless was presented with sufficient evidence in the course of
their testimony to reach its own independent determination”].)
C. The Trial Court Did Not Abuse Its Discretion in Declining to Assess Watts
Charges Against Slobodan for His Exclusive Use of the Community Home
Dragana contends the trial court erred in failing to assess Watts charges
against Slobodan for his exclusive use of the Laguna Niguel home during the nearly nine
years that elapsed between the couple’s separation and the court’s division of the
community estate. According to Dragana, the trial court’s duty to equally divide the
community estate required the court to charge Slobodan for the reasonable value of his
14
exclusive use of the community home because he waived any offsetting claim to
reimbursement for the payments he made toward the home and its maintenance during
this period. We disagree.
“‘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 (Falcone); see In re Marriage of Watts (1985) 171 Cal. App. 3d
366, 373-374 (Watts).) A closely related concept is a so-called “Epstein credit.” (In re
Marriage of Epstein (1979) 24 Cal. 3d 76, 84-85 (Epstein).) When a spouse uses separate
property funds after separation to pay a preexisting community obligation, the paying
spouse may seek a credit for those payments upon division of the community estate.
(In re Marriage of Cooper (2016) ___ Cal.App.4th ___, ___ [2016 WL 3138012, *10]
(Cooper); Epstein, at pp. 84-85.) Accordingly, Watts charges can be viewed as “‘usage
charges’” and Epstein credits can be viewed as “‘payment credits.’” (In re Marriage of
Jeffries (1991) 228 Cal. App. 3d 548, 552.)
“The determinations of Watts charges and Epstein credits are matters
addressed to the sound discretion of the trial court. ‘When a trial court concludes that
property contains both separate and community interests, the court has broad discretion to
fashion an apportionment of interests that is equitable under the circumstances of the
case.’ [Citations.] Stated another way, ‘reimbursement is not automatic, but involves the
consideration of . . . a variety of factors’ such as whether the parties had an agreement,
the rental value of the asset being used exclusively by one spouse, whether the conduct of
one spouse led to losses to the community, whether exclusive use of the asset represented
a duty of support, and additional considerations.” (Cooper, supra, ___ Cal.App.4th at
15
p. ___ [2016 WL 3138012, *10]; see Falcone, supra, 203 Cal.App.4th at p. 979 [“The
trial court determines what is due the community ‘after taking into account all the
circumstances’ relevant to the exclusive possession by one spouse”].) Indeed, after
considering all of the surrounding circumstances, the trial court may deny Watts charges
if it determines it would be unfair or unreasonable to charge a spouse for his or her
exclusive use of a community asset. (Watts, supra, 171 Cal.App.3d at pp. 373-374;
see Braud, supra, 45 Cal.App.4th at p. 819.)
We review a trial court’s decision on Watts charges for abuse of discretion.
(In re Marriage of Hebbring (1989) 207 Cal. App. 3d 1260, 1272.) “Under this standard,
a trial court’s ruling ‘will be sustained on review unless it falls outside the bounds of
reason.’ [Citation.] We could therefore disagree with the trial court’s conclusion, but if
the trial court’s conclusion was a reasonable exercise of its discretion, we are not free to
substitute our discretion for that of the trial court.” (Avant! Corp. v. Superior Court
(2000) 79 Cal. App. 4th 876, 881-882; see Sargon Enterprises, Inc. v. University of
Southern California (2012) 55 Cal. 4th 747, 773 [to be abuse of discretion, trial court
decision must be “‘so irrational or arbitrary that no reasonable person could agree with
it’”].)
Here, the trial court considered all of the surrounding circumstances and
declined to assess Watts charges against Slobodan because the court “[could] find no
equity in ordering Watts charges [on the facts presented].” We agree and find no abuse
of discretion.
Slobodan and Dragana bought the home less than two weeks before they
separated, with Slobodan paying the entire $545,000 down payment with his separate
property. Although the trial court found the home to be community property because the
couple purchased it during their marriage and took title as joint tenants, the court
nonetheless confirmed the home as Slobodan’s separate property when the court divided
16
the community estate because the community had no equity in the home after awarding
Slobodan his section 2640 reimbursement for the down payment.
Except for the first two weeks the couple owned the home, Slobodan had
exclusive use of the property. The court originally ordered Dragana to move out of the
home upon the couple’s separation based on Slobodan’s allegations she had physically
abused him. A few weeks later, the couple stipulated Slobodan would have exclusive use
of the home until the community estate was divided, and he would be responsible for
paying the mortgage, taxes, homeowner’s association dues, insurance, and other costs
associated with the home. He met his obligations under this stipulation through the time
of trial.
California courts have held a spouse in possession of a community asset
following separation may discharge his or her duty to compensate the community for the
exclusive use of the asset—that is, the duty to pay Watts charges—by paying the monthly
finance payments and all costs associated with the asset if those payments roughly
approximate the reasonable value of the spouse’s exclusive use. (Falcone, supra,
203 Cal.App.4th at pp. 978-979; In re Marriage of Garcia (1990) 224 Cal. App. 3d 885,
891.) The facts of this case supports the trial court’s application of this rule regardless of
the relationship between the amounts Slobodan paid and the value of his exclusive use of
the home because he paid the entire down payment and all other payments and expenses
with his separate property, and the community purchased the home just two weeks before
the couple separated.
Although the home was a community asset based on the time of its
purchase and its title, the community never had any financial interest in the home because
no community assets were used to purchase or maintain it, and the home experienced no
meaningful appreciation in value. If the home had been sold at the time of separation, the
community would not have received any of the proceeds because the couple separated
before the first house payment was made, and therefore Slobodan’s reimbursement claim
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for the down payment and the payoff for the loan would have consumed all of the sale
proceeds. Similarly, as explained above, the trial court found the community had no
equity in the home at the time of trial because the amount due on the loan and Slobodan’s
reimbursement claim totaled more than the home’s value.
Dragana contends Slobodan cannot claim any benefit for making the
payments on the house following the couple’s separation because the stipulation granting
him exclusive use stated he “shall not be entitled to any community property
reimbursement from [Dragana] for the payments, expenses, or costs expended by
[Slobodan] while having the exclusive use, control and occupancy of the home.”
Dragana interprets this provision as a waiver of Slobodan’s right to claim Epstein credits
for the payments he made, and therefore the trial court should not have considered those
payments in determining whether to assess Watts charges against Slobodan. Not so.
Slobodan is not seeking any reimbursement from Dragana or the
community for the payments he made on the home. Rather, he simply seeks to avoid
paying twice for using the home purchased with his separate property and in which the
trial court found the community had no financial interest. Under Dragana’s interpretation
of the stipulation, Slobodan would have to pay both the costs of owning the home and
rent for using the home. That is not what the stipulation says and Dragana presents no
evidence or authority entitling her to such a windfall. The court considered the
stipulation and all other surrounding circumstances, and concluded it was not fair or
reasonable to assess Watts charges against Slobodan. The court’s fair and sensible
decision can hardly be characterized as an abuse of discretion.
Finally, Dragana contends the trial court applied an erroneous legal
standard by declining to impose Watts charges because it “‘[could] find no equity in
ordering Watts charges here.’” According to Dragana, equity, defined as “‘[t]he
remaining interest belonging to one who has pledged or mortgaged his property,’” does
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not “affect[] the obligation of the spouse in possession to pay to the community
reasonable rental for his exclusive use.” Dragana misconstrues the trial court’s ruling.
Although the community’s lack of any equity in the home was one of the
many factors the trial court considered, the court did not conclude the community must
have equity in the home before Watts charges may be assessed. Rather, the quote from
the trial court’s ruling merely meant the court found it was not equitable, that is, fair, to
order Watts charges based on the totality of the circumstances. That is the proper legal
standard. (Cooper, supra, ___ Cal.App.4th at p. ___ [2016 WL 3138012, *10]; Braud,
supra, 45 Cal.App.4th at p. 819; Watts, supra, 171 Cal.App.3d at p. 373-374.)
III
DISPOSITION
The judgment is affirmed. In the interests of justice, the parties shall bear
their own costs on appeal.
ARONSON, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
FYBEL, J.
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