In the Matter of the Marriage of: Daniel Y. Watanabe & Solveig H. Watanabe ( 2021 )

FILED
JULY 1, 2021
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
In re the Marriage of ) No. 36619-7-III
)
DANIEL Y. WATANABE, )
)
Appellant, )
)
and ) UNPUBLISHED OPINION
)
SOLVEIG H. WATANABE, )
)
Respondent. )
LAWRENCE-BERREY, J. — Daniel Watanabe appeals the trial court’s property
award in this dissolution appeal. He argues the trial court misclassified two properties as
his former wife’s separate property and erred by admitting parol evidence of intent. We
disagree and affirm.
FACTS
Daniel Watanabe and Solveig Watanabe married in January 1999 in Silvana,
Washington. After Daniel and Solveig1 graduated from the University of Washington,
they moved to California where Daniel got a teaching job.
1
We choose to refer to the parties by their first names for stylistic reasons.
No. 36619-7-III
In re Marriage of Watanabe
Solveig’s inheritance
In 2000, Solveig’s mother unexpectedly died. Solveig and her sister, Olivia Gunn,
each received a 50 percent interest in their mother’s property in Arlington, Washington.
Solveig also received an individual retirement account (IRA) and annuity totaling over
$40,000.00 shortly after her mother’s death. She received another $45,000.00 in April
2002 and $59,032.00 in December 2002. She received $100,000.00 from the sale of her
mother’s other property in August 2005. In February 2008, she received another
distribution from her mother’s estate in the sum of $732,678.87.
Arlington property & Olivia Farm, Inc.
After Solveig’s mother’s death, Daniel and Solveig took over her farm in
Arlington. They started a horse boarding business, which allowed for Solveig to stay
home and work the farm. They began acquiring Norwegian Fjord horses in 2001 and
later decided to become breeders. In 2003, Daniel and Solveig incorporated their horse
breeding and boarding business as Olivia Farm, Inc. They were 50/50 owners of the
corporation. The business was not profitable.
On May 25, 2005, Solveig quitclaimed her interest in the Arlington property to
herself and Daniel. The quitclaim’s stated purpose was to establish community property.
2
No. 36619-7-III
In re Marriage of Watanabe
Ford property
On May 26, 2005, the parties purchased five parcels of land (Ford property) in
Stevens County. Their goal was to expand the breeding business to produce hay, train
horses, and become a riding and driving destination facility. Earnest money of $1,000.00
was paid from an account that neither party recalls. The remainder of the purchase price
was secured by two deeds of trust on the Arlington property in the aggregate sum of
$413,000.00 in favor of Flagstar Bank. The parties made monthly mortgage payments of
$2,877.00 from June 2005 to July 2006.2 The mortgage payments came from the parties’
joint checking account. After Solveig received her one-half of the proceeds from the
Arlington sale, she applied those funds to the principal of the Ford mortgage.3 Two wire
transfers, totaling $407,718.69 were applied to the balance of the Ford mortgage.
In 2008, the parties purchased land adjacent to the Ford property for $33,000.
That property was paid for with a check from Solveig’s separate bank account. The
2
The trial court indicated the payments ended prior to January 2006. See
Clerk’s Papers (CP) at 167. The payments actually ended in mid-2006. See Report of
Proceedings (RP) at 193-94 (Daniel testifies mortgage payments ended July 2006); Ex. P-
3 (Form 1098, Annual Tax and Interest Statement 2006 indicating $11,588.77 interest
paid and Ford mortgage paid in full).
3
The trial court also indicated that Solveig received the Arlington proceeds on
December 31, 2015. See CP at 167. She received those proceeds well before then
because she paid the Ford Mortgage in mid-2006. See RP at 193-94, 541-42; Ex. P-3.
3
No. 36619-7-III
In re Marriage of Watanabe
parties constructed a home on the Ford property in 2009. Daniel worked full time for
Olivia Farm until the fall of 2012, when he started working as a teacher. Daniel’s
teaching paychecks were deposited into the parties’ joint bank account. Solveig deposited
$370,000 into the parties’ joint account between 2010 and 2014. Solveig also paid over
$170,000 to the Olivia Farm business account during that period. These funds paid for
the construction of the family home, credit card balances, and business expenses.
Clayton property
In 2015, the parties purchased three tracts of land referred to as the Clayton
property. The warranty deeds for all three purchases show the purchasers as both Daniel
and Solveig. The funds to purchase two of the tracts were from Solveig’s separate bank
account. The funds to purchase the third tract came from the parties’ Bank of America
joint account, which Solveig had made significant deposits into beforehand.
In July 2016, the parties separated.
Trial court proceedings
The court held hearings in late October and mid-November 2018. The trial
spanned eight days with 15 witnesses and 220 exhibits.
4
No. 36619-7-III
In re Marriage of Watanabe
Solveig’s testimony
Solveig testified that she and Daniel had to borrow funds to purchase the Ford
property because they had not accumulated any savings. Solveig used the Arlington
property to secure the loan for the Ford property. At the time of the Ford purchase, they
had a buyer for the Arlington property. The sale did not go through for 18 months
because the buyer was a property developer who had to determine permitting for
subdivisions, which impacted the final sale price.
Solveig testified she did not recall signing the quitclaim deed to Arlington. She
did not intend to convert her inherited interest in her mother’s home to community
property. She said no one explained the consequences and although creation of
community property appears on the deed, she did not understand what that meant at the
time.
Stacey Pedersen’s testimony
Stacey Pedersen, Solveig’s cousin’s wife, was the loan officer for the Arlington
property. She testified that the lender required the Ford loan to be in Daniel’s name
because he was the only one who had W-2 income. She stated the lender required the
Arlington quitclaim and read the loan documents that provided, “borrower must be on
5
No. 36619-7-III
In re Marriage of Watanabe
title on the above captioned property [Arlington] prior to closing or this commitment is
null and void.” Report of Proceedings (RP) at 1166.
Trial court’s rulings
The trial court authored a detailed memorandum opinion and thereafter entered its
findings of fact and conclusions of law.
With respect to the Arlington property, the court wrote in its memorandum
opinion:
The testimony and exhibits do not show Solveig intended to convert
her separate property in the Arlington home to community property. . . .
Testimony from Stacey Pedersen and Exhibit R-158 specifically show that
Flagstar Bank required Dan be added on title to the Arlington home as a
condition of the loan. Dan even testified that he had good credit and
Solveig had none. Solveig signed the deed at closing of the Arlington
property to be able to finance the purchase of the Ford property and does
not establish an intention to convert her half interest in Arlington to
community property. . . .
Clerk’s Papers (CP) at 143.
With respect to the Ford property, the court’s findings state:
The parties simply did not have sufficient community income or cash
flow to pay anything towards the Ford purchase. Every single corporate tax
return . . . shows both the net taxable income and the cash flow from Olivia
Farm Inc.’s . . . operations were conducted at a loss so that payments could
not have been from [Daniel’s] earnings on the ranch nor did they likely
have sufficient savings from prior accumulated earnings to do so.
. . . Additionally, there was no evidence of any significant infusion of
community funds to purchase the Ford property unless [Solveig’s] separate
6
No. 36619-7-III
In re Marriage of Watanabe
property interest in the Arlington home or inherited cash was
converted/transmuted to community property.
....
It is not disputed that the initial Ford property was titled in both their
names. However, as referenced above, the entire proceeds were from
[Solveig’s] separate property gifts and inheritances. . . . [Daniel] asserts
that the purchase was intended to be as community property and produced a
copy of the Real Estate Excise Tax Affidavit . . . . However, the affidavit
only references the parties as grantees on title as husband and wife. There
is nothing shown on this affidavit that [Solveig] intended to transmute her
separate inheritances or investments into community real estate.
Although the Statutory Warranty Deed lists both names as husband
and wife, the preparation of the deed by the closing agent that lists both
parties as grantees . . . does not establish community property. Rather, what
was [Solveig’s] intent? Was it her intent to keep her separate property
separate or to convert her separate property inheritance into community
property real estate?
CP at 168-70.
The court answered this question by discussing In re Estate of Borghi, 167 Wn.2d
480, 219 P.3d 932 (2009), in its conclusions of law:
[I]t is this court’s understanding from reading Borghi that legal title is
irrelevant irrespective of whether acquisition was before or after marriage
and that it must analyze the conveyance in terms of an intention to gift,
without any legal presumption of transmutation.
. . . Without such a presumption of gift to the community, [Solveig’s]
separate property would continue to be traced to the Ford property.
Furthermore, characterization of whether such property is designated as
community or separate property is only one factor to consider. Another just
as important factor is the court’s requirement to use its broad discretion to
divide such property equitably and in doing so may consider the source of
funds for the parties’ acquisitions.
....
7
No. 36619-7-III
In re Marriage of Watanabe
The value of the Ford residence was and will be considered paid
either directly or indirectly from [Solveig’s] separate funds.
CP at 193-94. Ultimately, the court found the Ford property’s value was $1,089,079 of
which $879,079 was Solveig’s separate property and $210,000 was community property.
The $210,000 reflected the rent free use of the property and the years of work Daniel
spent improving the property.
With respect to the Clayton property, the court found that two of the three
parcels were Solveig’s separate property because she had paid for them from her
separate account. The court found that the third parcel was community property
because it had been paid for from the parties’ joint account.
The court valued Solveig’s separate property at $2,216,186, Daniel’s
separate property at $16,000, and the parties’ community property at $693,466.
The court awarded the parties their separate properties and awarded Daniel 65
percent of the community property. Daniel appealed this property award.
8
No. 36619-7-III
In re Marriage of Watanabe
ANALYSIS
A. PROPERTY CHARACTERIZATION
Daniel assigns error to the trial court’s characterization of the Ford and Clayton4
properties as Solveig’s separate property. He argues the trial court misconstrued Borghi.
We disagree.
We begin by reviewing the applicable standards of review. The characterization of
marital property is a mixed question of law and fact. In re Marriage of Kile, 186 Wn.
App. 864, 876, 347 P.3d 894 (2015). We review factual findings supporting the trial
court’s characterization for substantial evidence. Id.; In re Marriage of Schwarz, 192
Wn. App. 180, 191-92, 368 P.3d 173 (2016). For example, the time and method of
property acquisition, the intent of the donor, and whether a party rebuts the presumption
of community or separate property are questions of fact, reviewed for substantial
evidence. Schwarz, 192 Wn. App. at 192; Kile, 186 Wn. App. at 876. The ultimate
4
Daniel fails to adequately argue why the trial court erred in classifying two of the
Clayton property parcels as Solveig’s separate property. For this reason, we address only
the trial court’s characterization of the Ford property. Holland v. City of Tacoma, 90 Wn.
App. 533, 538, 954 P.2d 290 (1998) (“Passing treatment of an issue or lack of reasoned
argument is insufficient to merit judicial consideration.”). We however note that the
analysis we use to affirm the Ford property’s characterization would be equally applicable
to the two Clayton parcels.
9
No. 36619-7-III
In re Marriage of Watanabe
characterization of the property is a question of law, reviewed de novo. Schwarz, 192
Wn. App. at 192; In re Marriage of Chumbley, 150 Wn.2d 1, 5, 74 P.3d 129 (2003).
“[P]resumptions play a significant role in determining the character of property as
separate or community.” Borghi, 167 Wn.2d at 483. Property acquired during marriage
is presumed to be community property, regardless of how title is held. Dean v. Lehman,
143 Wn.2d 12, 19, 18 P.3d 523 (2001). A party challenging a property’s characterization
as community bears the burden of rebutting the presumption, which can be overcome only
by clear and convincing evidence. Id. at 19-20.
Separate property is property owned by a spouse before marriage or acquired after
marriage “by gift, bequest, devise, descent, or inheritance, with the rents, issues and
profits thereof.” RCW 26.16.010. “Separate property brought into the marriage will
retain its separate character as long as it can be traced or identified.” In re Marriage of
Tulleners, 11 Wn. App. 2d 358, 368, 453 P.3d 996 (2019).
Here, it is undisputed that the Ford property was acquired during the marriage.
Thus, the presumption of community property applies. To rebut this presumption,
Solveig needed to provide clear and convincing evidence that the funds used to purchase
the Ford property came from her separate property and were traceable to the Ford
purchase.
10
No. 36619-7-III
In re Marriage of Watanabe
1. Funds used came from Solveig’s separate property
The trial court found that the funds used to purchase the Ford property came from
Solveig’s separate estate. This finding is quoted at length above and we do not restate it
here. Daniel has not challenged this finding nor does he argue the trial court failed to
apply the proper clear and convincing standard. Rather, he challenges the trial court’s
legal conclusion that the joint title gift presumption does not apply here.
Estate of Borghi
In Borghi, the wife entered into a real estate purchasing contract before marriage.
167 Wn.2d at 482. A few months after marriage, the contract seller issued a fulfillment
deed in the names of the husband and wife. Id. When the wife died intestate, her son
from a prior marriage sought rights to that property. Id. at 482-83.
After recognizing that the property was presumed separate because it was acquired
before marriage, the Supreme Court discussed and rejected the joint title gift presumption.
That rule, which arises when title to a spouse’s separate property changes to include both
spouses’ names, presumes the spouse intended to gift the property to the community. Id.
at 484-85. The court explained:
[E]ven when a spouse’s name is included on a deed or title at the direction
of the separate property owner spouse, this does not evidence an intent to
transmute separate property into community property but merely an intent to
put both spouses’ names on the deed or title. There are many reasons it may
11
No. 36619-7-III
In re Marriage of Watanabe
make good business sense for spouses to create joint title that have nothing
to do with the intent to create community property. Allowing a presumption
to arise from a change in the form of title inappropriately shifts attention
away from the relevant question of whether a gift of separate property to the
community is intended and asks instead the irrelevant question of whether
there was an intent to make a conveyance into joint title.
Id. at 489 (citations omitted).
Daniel argues Borghi does not control because the Ford property was always titled
in both his and Solveig’s names. He asserts that Borghi did not overrule the joint title gift
presumption for property acquired after marriage and titled in both spouses’ names. We
disagree. The Borghi court’s disapproval of the joint title gift presumption did not rest on
whether the property was acquired before or after marriage. The court instead discussed
the inherent problems with relying on title alone to determine intent. As that court
explained, “We have consistently refused to recognize any presumption arising from
placing legal title in both spouses’ names and instead adhered to the principle that the
name on the deed or title does not determine the separate or community character of the
property, or even provide much evidence.” Id. at 488. Indeed, there are many reasons for
spouses to create joint title. This proposition is illustrated here: Solveig had no credit and
the community needed to secure a loan. To satisfy the lender’s requirements, Solveig
created joint title for the Arlington property.
12
No. 36619-7-III
In re Marriage of Watanabe
Marriage of Skarbek
Daniel argues In re Marriage of Skarbek, 100 Wn. App. 444, 997 P.2d 447 (2000),
controls. We disagree. There, the husband deposited separate funds into a joint bank
account, and the trial court classified those funds as community property. Id. at 446. This
court reversed, concluding the trial court erred in characterizing the funds as community
when the husband traced and identified them at trial. Id. We reasoned, “The name under
which property is held does not constitute direct and positive evidence determinative of
whether the property is community or separate.” Id. at 448.
Skarbek was decided nine years before Borghi. It recognized the joint title gift
presumption but found it inapplicable due to the nature of the property and the traceability
of the funds. Daniel relies on one line: “The Skarbeks are fighting over money, not bank
accounts. The transaction here is not the same as buying stocks or bond or land. . . . If
Mr. Skarbek had spent his money on an unrelated asset and put that asset in Ms.
Skarbek’s name, the rebuttable presumption would have attached.” Id. at 450. We do not
find this citation convincing. Importantly, Borghi disapproves of the joint title gift
presumption discussed therein.
13
No. 36619-7-III
In re Marriage of Watanabe
We conclude the trial court did not err by refusing to apply the joint title gift
presumption to the Ford property. Borghi makes clear that the presumption no longer
applies in Washington.
2. Funds used were traceable to Solveig’s separate property
Daniel notes that funds from the parties’ Bank of America joint account were used
for 13 months to purchase the Ford property. He argues that commingling of community
(Bank of America) funds with Solveig’s separate property requires the Ford property to
be characterized as community property. We disagree.
In Schwarz, we discussed the commingling doctrine:
“Commingling” of separate and community funds may give rise to a
presumption that all are community property. This is not commingling in
the ordinary sense, however; it must be hopeless commingling. Unlike the
foregoing presumptions, this one is conclusive, arising only after the effort
at tracing proves impossible. Only if community and separate funds are so
commingled that they may not be distinguished or apportioned is the entire
amount rendered community property. If the sources of the deposits can be
traced and identified, the separate identify of the funds is preserved.
192 Wn. App. at 190-91 (internal quotation marks, citations, and footnotes omitted).
Commingling occurs only when a substantial amount of community property is
intermixed with a substantial amount of separate property. In re Marriage of Shui, 132
Wn. App. 568, 584, 125 P.3d 180 (2005) (quoting 19 KENNETH W. WEBER,
14
No. 36619-7-III
In re Marriage of Watanabe
WASHINGTON PRACTICE: FAMILY AND COMMUNITY PROPERTY LAW § 11.13, at 159-60
(1997)).
Here, the parties purchased the Ford property by paying over $37,0005 from their
Bank of America joint account and later paying over $400,000 from Solveig’s separate
property. With respect to the mortgage payments, the trial court reviewed tax and bank
records and found that the source of the payments was Solveig’s separate property.
Daniel has not assigned error to this finding, so it is a verity on appeal. Robel v. Roundup
Corp., 148 Wn.2d 35, 42, 59 P.3d 611 (2002). Because all or substantially all of the
money used to purchase the Ford property came from Solveig’s separate property and
because the payments are generally traceable to Solveig’s separate property, the trial court
did not err in characterizing the Ford property as Solveig’s separate property.
But even if the trial court’s characterization of the Ford property was error, for us
to reverse, Daniel must prove that the characterization significantly influenced the
property division or that the distribution was unfair and inequitable.
An appellate court rarely reverses a trial court’s property distribution on the
grounds that property was mischaracterized. In re Marriage of Zier, 136 Wn. App. 40,
46, 147 P.3d 624 (2006). We are reluctant to revisit the trial court’s characterization of
5
$2,877 x 13 months = $37,401.
15
No. 36619-7-III
In re Marriage of Watanabe
property when the distribution is otherwise just and equitable. In re Marriage of Farmer,
172 Wn.2d 616, 631, 259 P.3d 256 (2011). We remand based on mischaracterization if:
(1) the trial court indicates the distribution was significantly influenced by the property’s
characterization, and (2) it is unclear that the court would have divided the property that
way had it been properly characterized. In re Marriage of Shannon, 55 Wn. App. 137,
142, 777 P.2d 8 (1989); see also In re Marriage of Langham, 153 Wn.2d 553, 563 n.7,
106 P.3d 212 (2005) (remand necessary only if property characterization was crucial to
distribution).
Here, the court acknowledged that the characterization of the property was only
one factor to consider, and stated, “Another just as important factor is the court’s
requirement to use its broad discretion to divide such property equitably and in doing so
may consider the source of funds for the parties’ acquisitions.” CP at 193.
Courts look to many factors when making distributions, including “(1) [t]he nature
and extent of the community property” and “[t]he nature and extent of the separate
property.” RCW 26.09.080(1), (2). The source or origin of funds used to acquire
community property may be considered. In re Marriage of Nuss, 65 Wn. App. 334, 341,
828 P.2d 627 (1992). We recently recognized a trial court’s discretion to award a
disparate share of community funds where the origin of such funds is separate property.
16
No. 36619-7-III
In re Marriage of Watanabe
Tulleners, 11 Wn. App. 2d at 370-71. Here, the Ford property was completely or
substantially paid for with Solveig’s separate property. Thus, even if the trial court
mischaracterized the Ford property and it was indeed community property as Daniel
contends, the court was well within its discretion to award a disparate proportion of the
Ford property to Solveig.
B. EXTRINSIC EVIDENCE: ARLINGTON PROPERTY
Daniel contends the trial court erred in permitting extrinsic evidence about
Solveig’s intent when she quitclaimed the Arlington property to herself and Daniel.
Solveig responds that Daniel has not preserved this error. She further asserts that the
parol evidence rule does not apply in this context. We agree with Solveig on both points.
In general, an appellate court will not address an error raised for the first time on
appeal. RAP 2.5(a). We nevertheless exercise our discretion and address Daniel’s
argument. Washington follows the objective manifestation theory of contract
interpretation. Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115
P.3d 262 (2005). “Under this approach, we attempt to determine the parties’ intent by
focusing on the objective manifestations of the agreement, rather than on the unexpressed
subjective intent of the parties.” Id. If the objective manifestation theory does not help us
determine the parties’ intent, we apply the “context rule.” Berg v. Hudesman, 115 Wn.2d
17No. 36619-7-III
In re Marriage of Watanabe
657, 667, 801 P.2d 222 (1990). This rule permits us to consider extrinsic evidence as to
the circumstances under which the contract formed to aid in ascertaining the parties’
intent. Id.; see also Nationwide Mut. Fire Ins. Co. v. Watson, 120 Wn.2d 178, 189, 840
P.2d 851 (1992) (explaining that extrinsic evidence may be used to “illuminate[ ] what
was written, not what was intended to be written”). We do not consider extrinsic
evidence that contradicts the plain language of an unambiguous agreement. Hollis v.
Garwall, Inc., 137 Wn.2d 683, 695, 974 P.2d 836 (1999).
Although Daniel correctly cites our state’s contract interpretation law, he
misapplies it to this case. The quitclaim deed unambiguously transferred title from
Solveig to the community, and the trial court did not permit extrinsic evidence to
contradict that fact. Rather, extrinsic evidence was admitted to ascertain whether Solveig
intended to transmute her share of Arlington permanently from her separate property to
the community with that quitclaim. Extrinsic evidence is permissible on this question.
Scott v. Currie, 7 Wn.2d 301, 308, 109 P.2d 526 (1941) (approving admission of parol
evidence to establish grantor’s intent); see also Borghi, 167 Wn.2d at 488-89
(distinguishing intent to transmute property from interpretation of deed). Solveig testified
that she did not intend to transmute the property, and Ms. Pedersen testified that the
lender required Daniel on the Arlington deed. See Ex. R-158 (Loan Closing Instructions,
18
No. 36619-7-III
In re Marriage of Watanabe
Specific Conditions 1 and 16). This testimony was not offered to interpret the deed itself,
but rather to explain the circumstances under which the deed was signed. It supports
Solveig's claim that she did not intend to permanently gift her inheritance to the
community.
Affirmed.
A majority of the panel has determined this opinion will not be printed in the
Washington Appellate Reports, but it will be filed for public record pursuant to
RCW 2.06.040.
Lawrence-Berrey, J.
WE CONCUR:
Pennell, CJ.
JI~ ~
' -.
.....
,J
~~».:r.
Fearing,J.
19