Source: http://courts.mrsc.org/supreme/044wn2d/044wn2d0851.htm
Timestamp: 2019-04-20 04:56:53+00:00

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HUSBAND AND WIFE - COMMUNITY PROPERTY - STATUS OF PROPERTY. Separate property continues to be separate through all of its changes and transitions as long as it can be clearly traced and identified; and rents, issues, and profits from separate property remain separate property.
 SAME - SEPARATE PROPERTY - PRESUMPTIONS - CHANGE OF STATUS. When it is once made to appear that property was once of a separate character, it will be presumed that it maintains that character until some direct and positive evidence to the contrary is made to appear.
 SAME - COMMUNITY PROPERTY - CONFUSION OF FUNDS - SEPARATE PROPERTY COMBINED WITH PERSONAL SERVICES. Where separate property consists of real estate or an unincorporated business with which personal services ostensibly belonging to the community have been combined, all the income or increase will be considered as community property in the absence of a contemporaneous segregation of the income between the community and the separate estates.
 SAME - SEPARATE OWNERSHIP OF CORPORATION BY HUSBAND. Where the husband at the time of marriage owned all or substantially all of the stock of a corporation, and a salary is paid to the husband by the corporation, the community is thereby compensated for his services, and any dividends paid or any enhanced value of the stock resulting from profits reinvested in the corporation are separate property.
«1» Reported in 272 P. (2d) 125.
 SAME. Where, at the time of marriage, a husband owned all but two qualifying shares in a corporation, and it cannot be said that the salary paid him by the corporation during the marriage was inadequate, the increase in the value of the corporation during such period must be considered as the rents, profits, and increase of the separate property of the husband, and such increase is his separate property.
 SAME - EVIDENCE AS TO CHARACTER OF PROPERTY - PRESUMPTIONS AND BURDEN OF PROOF. Property acquired by either of the spouses during coverture is presumptively community property, and the burden is upon the party who contends that it is separate property to prove otherwise.
 SAME - EVIDENCE TO OVERCOME PRESUMPTION. The fact that property acquired during coverture is in the name of one of the spouses does not overcome the presumption that the property was acquired as community property.
 SAME. On an issue as to the status of property acquired during coverture, something more is required to establish its separate character than an assumption that it was derived from separate income, such assumption being founded upon the further assumption that the community had no income during the marriage except the salary received by the husband from a corporation whose stock was his separate property.
 SAME. The burden rests upon the spouse asserting the separate character of the property acquired by purchase during the marriage status to establish his or her claim by clear and satisfactory evidence; and this requirement is not met by the mere self-serving declaration of the spouse claiming the property in question that he acquired it from separate funds and a showing that separate funds were available for that purpose, it being necessary that separate funds used for such a purpose be traced with some degree of particularity.
 SAME - COMMINGLED FUNDS. Where separate funds are hopelessly commingled with those which it must be presumed are community funds, the entire mass is thereby rendered community property.
 SAME - CONTRACTS BETWEEN HUSBAND AND WIFE - ANTENUPTIAL AGREEMENTS - VALIDITY. Antenuptial agreements which are designed to alter or adjust the property rights of prospective spouses after marriage are not in themselves invalid.
 SAME. An engagement to marry creates a confidential relation between the contracting parties, and an antenuptial contract entered into after the engagement and during its pendency must be attended by the utmost good faith.
 SAME. The first inquiry in any case in which the validity of an antenuptial contract is attacked, must be directed to the adequacy of the consideration and its fairness.
 See 51 A. L. R. 130; 26 Am. Jur. 893.
 SAME. Where an antenuptial agreement provided that all property taken in the name of the husband should be his sole and separate property, the unlimited power thereby given him to secure for his separate estate property which would otherwise belong to the community indicated unfairness and a breach of trust by reason of the existing confidential relationship of the parties to the proposed marriage, and imposed upon the husband the burden of proving that the wife fully understood the nature and significance of the contract and that she freely and voluntarily entered into it; and in the absence of such proof, the contract cannot stand.
Appeal from a judgment of the superior court for King county, No. 442835, Wilkins, J., entered April 24, 1953, upon findings, dismissing an action to have certain property determined to be community property and subject to probate proceedings, tried to the court. Affirmed in part; reversed in part.
Carl Pruzan and Hay & Hamlin, for appellant.
Rummens, Griffin, Short & Cressman, for respondents.
This is a lawsuit by the administrator with the will annexed of the estate of Lucia Merlino, deceased, to have certain property determined to be community property and subject to probate proceedings. The surviving husband, Angelo Merlino, claims that the property in question is his separate property. He and his two sons by a former marriage are defendants. The lawsuit was dismissed by the trial court with prejudice. The administrator w. w. a. has appealed.
Lucia had two adult daughters and a son by a previous marriage.
When the marriage to Lucia occurred in 1929, Angelo owned real property valued at approximately $72,000; all but two qualifying (directorship) shares of the Metropolitan Grocery Company (book value at that date being $72,880.52); and in addition, there were certain balances owing to Angelo on various sums of money he had previously lent.
Lucia, at the time of her marriage to Angelo, owned a dairy ranch (operated upon leased land), on which there were nineteen head of cattle. The ranch was later sold to one of her daughters for four thousand dollars. Lucia owned a home in Roslyn, Washington, a cafe in Cle Elum, Washington, and had a bank account in an undisclosed amount.
property then owned anti property subsequently taken in her name. The contract also provided that Angelo would maintain a five-thousand-dollar policy of insurance on his own life in favor of Lucia. She was to insure her own life for three thousand dollars, naming Angelo as beneficiary. After five or six years, both policies were allowed to lapse and were never reinstated. Angelo further agreed to provide in his will that, should Lucia survive him, she would have the use and occupancy of their family home during the remainder of her natural life, so long as she did not permanently remove therefrom. This provision was only partially complied with. Under Angelo's will, Lucia's right to use the family home would be cut off upon her remarriage, or if she should voluntarily absent herself from the home for a period of thirty days.
After the marriage in 1929, Angelo and his two sons continued to operate the importing and grocery business until 1945, at which time the corporation was dissolved. In 1946, Angelo sold the assets of the dissolved corporation on a conditional sale contract to his two sons for $133,344.28. This contract provides that whatever balance is due at the time of Angelo's death will be discharged.
Lucia; (b) a $5,000 U. S. Government bond, Series E, payable to bearer, purchased by Angelo in 1944; (c) three promissory notes, executed by Dominick and Pete DeSanto (balance at the date of Lucia's death totaling $19,301.11); (d) real property described as lot one, block four, Terry's Fifth Addition to Seattle, purchased from King county in 1939 for $260, with improvements placed thereon sometime after 1939.
We note that appellant also claims a community interest in $2,300, in silver dollars, which were kept in containers, apparently for several years, in Angelo's house. The only evidence in the record bearing on this $2,300 came from Angelo, who testified that the silver coins disappeared the day before Lucia's death. Appellant offered no proof that either Angelo or his sons have had possession of this asset at any time since the death of Lucia. Because of this failure of proof, we do not think that the matter of this item is before us, and we deem it unnecessary to determine its status as community or separate property.
It will be recalled that, prior to Lucia's death, the corporation had been dissolved and its assets sold to Angelo's two sons under a conditional sale contract. At the time Lucia died, there was still due on the contract approximately $89,000; also, Angelo had in his possession several uncashed checks representing payments made by the sons on the contract. Appellant asserts a community interest in the balance due on the contract, such interest allegedly representing the increased value of the grocery and importing business claimed to have accrued after the marriage as a result of the community efforts or labor of Angelo.
community property laws of Washington, the above-listed assets are his separate property.
In the ensuing discussion we shall, for the most part, refer to the questions raised by assignments of error rather than to the assignments specifically and individually. With this observation, we shall now consider whether Lucia acquired any community interest in the corporation. It will be recalled that, prior to the marriage and until the time in 1945-1946, when the corporation was dissolved and its assets sold to Angelo's two sons, substantially all of the corporate stock was owned or held by Angelo, ostensibly as his separate estate. If, solely by the operation of the community property rules of this state, the corporation at the time of its dissolution was the separate property of Angelo, no consideration of the effect of the antenuptial contract is necessary to establish Angelo's claim of separate ownership of the conditional sale contract, the balance due thereon, and the uncashed checks representing monthly payments. Accordingly, the problem of the ownership of the corporation will now be considered solely in relation to our community property law.
 It is a well settled principle that separate property continues to be separate through all of its changes and transitions as long as it can be clearly traced and identified; furthermore, that rents, issues, and profits from separate property remain separate property. In re Brown's Estate, 124 Wash. 273, 214 Pac. 10; Rogers v. Joughin, 152 Wash. 448, 277 Pac. 988; State ex rel. Van Moss v. Sailors, 180 Wash. 269, 39 P. (2d) 397; In re Binge's Estate, 5 Wn. (2d) 446, 105 P. (2d) 689; DuPont de Nemours & Co. v. Garrison, 13 Wn. (2d) 170, 124 P. (2d) 939; Burch v. Rice, 37 Wn. (2d)185, 222 P. (2d) 847.
maintains that character until some direct and positive evidence to the contrary is made to appear.' (Italics ours.)"
Appellant concedes that, at the time of the marriage, the corporation was Angelo's separate property; but argues, as mentioned above, that the increase in its value from the time of the marriage until the dissolution in 1945 was community property because it was attributable to the community labor or efforts of Angelo. During the pertinent years, Angelo paid himself a salary from the corporation, averaging $1,858 a year. This salary was unquestionably community property. However, the trial court found that the salary was used up in taking care of the living expenses of the Merlinos. From our review of the record, we are not inclined to disturb this finding of the trial court.
 Where separate property, owned at the time of marriage, is combined with community labor of the husband to create profits or to increase the value of the original Separate property, with both the community and the separate estates asserting ownership of such increment, the courts are confronted with directly conflicting principles, each demanding exclusive application. In analyzing the decisions dealing with this problem, the principle is stated that the solution of each case depends upon its own particular facts. In re Hebert's Estate, 169 Wash. 402, 14 P. (2d) 6. However, some other more helpful principles seem to emerge. For example, it is clear that, where the separate property in question is real estate or an unincorporated business with which personal services ostensibly belonging to the community have been combined, the rule is that all the income or increase will be considered as community property in the absence of a contemporaneous segregation of the income between the community and the separate estates. Salisbury v. Meeker, 152 Wash. 146, 277 Pac. 376; In re Witte's Estate, 21 Wn. (2d) 112, 150 P. (2d) 595.
See, also, In re Dewey's Estate, supra.
operation of the corporation was financed in large measure by community credit. Dividends were laid from time to time and were commingled with community funds. The husband and wife treated the corporate property during their lives as community property. Finally, the original separate investment was almost insignificant as compared to the value of the property at the time of the wife's death. These several distinctions are convincing to us that the Buchanan case is not controlling in connection with our present inquiry.
It is true that the salary paid to Angelo Merlino during his marriage was rather small. A persuasive argument can be made that, where a husband owning a large corporation pays to the community a salary which is grossly unfair, such salary should be disregarded with the result that profits accruing partly from community labors and partly from natural increase of the separate property will be held to be commingled and community property. However, we need not pass on this question here.
Whether a salary of $1,858 a year is fair must depend largely upon the earnings of the corporation during the time such a salary was paid. The evidence on this underlying question is wholly insufficient to support any conclusion as to the unfairness of the salary paid to Angelo. The value of the corporation in 1929 is in dispute. The book value then was $72,880. Angelo Merlino's attorney testified that he thought the corporation was then worth $120,000. Similarly, the value of the corporation in 1945, when it was dissolved, was not proved. The assets of the business were then sold by Angelo to his sons for $133,344.28; but, in view of the close relationship between the parties, this figure cannot be taken as conclusive of the actual value of the corporation. From the record, we have not been able to determine what the corporate earnings were from 1929 until 1945. As a result, we cannot say that the salary paid by the corporation to Angelo during these years was inadequate.
marriage must be considered as the rents, profits, and increase of Angelo's separate property, and, therefore, this increase is his separate property. It follows that the balance due upon the contract of sale of the assets of the dissolved corporation, as well as the uncashed checks given by Angelo's sons in payment thereon, are the separate property of Angelo. As mentioned heretofore, it is unnecessary to consider the legal significance of the antenuptial contract between Angelo and Lucia Merlino in so far as these assets are concerned.
marriage to Lucia, there is no credible evidence in the record to so indicate.
See, also, Stephens v. Nelson, 37 Wn. (2d) 28, 221 P. (2d)520.
 Aside from the provisions of the antenuptial agreement and thinking for the moment solely in terms of community property law, the fact that much of the property in question is in the name of Angelo Merlino is not controlling. We have held on several occasions that, where a spouse acquired money and placed it in a bank account in his or her own name, this fact does not overcome the presumption that the property was acquired as community property. Plath v. Mullins, 87 Wash. 403, 151 Pac. 811; Jones v. Duke, 151 Wash. 108, 275 Pac. 72.
 We have studied the record and respondents' brief searching for evidence that might overcome the presumption. We have found only an assumption that this property was derived from separate income. This assumption is founded upon the further assumption that the community had no income during the marriage, except the $1,858 a year salary from the corporation. Something more is required to establish the separate character of the property concerned.
"The burden rests upon the spouse asserting the separate character of the property acquired by purchase during the marriage status to establish his or her claim by clear and satisfactory evidence. E. I. DuPont de Nemours & Co. v.
 Even if it should be assumed that a portion of the savings accounts and other assets were derived from separate income of Angelo, such funds are hopelessly commingled with those which we must presume are community funds, thus rendering the entire mass community property. In re Dougherty's Estate, 27 Wn. (2d) 11, 176 P. (2d) 335.
It remains for us to consider the antenuptial contract between Angelo and Lucia Merlino in so far as it may affect the status of the assets which are unrelated to Angelo's corporate business. The pertinent provisions of the antenuptial agreement are quoted hereinbefore.
It is respondents' position that, by virtue of the abovementioned contractual provisions, all property acquired by the parties after their marriage was the separate property of one or the other of them, and, conversely, that there was no community property. A careful reading of the contract does not bear out this conclusion. It is not so broad as contended. There are three parts to the pertinent paragraph: (1) All property owned by Angelo at the time of marriage to Lucia, together with all increase thereof, no matter how derived, was to be his separate property. This provision does not apply to the property under consideration, since it was acquired after marriage and is not shown to be an increase or increment of property owned at marriage. (2) All property, the title to which was taken in Angelo's name. This is applicable to all the property under consideration except the U. S. bond. The bond was not in Angelo's name, but was payable to bearer. (3) All property standing in Angelo's name at the time of his death. This provision cannot aid Angelo, because he is still alive.
The gist of the contract provisions is that they do not purport or attempt to alter the status of property acquired after the marriage, except (a) that which is an increase to separate property owned before marriage, or (b) that "taken . . . in the name" of Angelo.
It may be seen that only the second of the contractual provisions above need be considered. Under it, the items of property, which otherwise would be community property, purportedly become Angelo's separate property merely by reason of the fact they are "taken . . . in the name" of Angelo. Appellant agrees this is the purport of the contract provision, but strongly contends that the agreement is invalid and is not binding upon Lucia or her estate. Inter alia, appellant argues that Angelo Merlino did not meet the strict requirements of good faith imposed upon an intended husband entering into such a contract with his intended wife.
"To render an ante-nuptial agreement valid, there must be a fair and reasonable provision therein for the wife, or - in the absence of such provision - there must be full and frank disclosure to her of the husband's worth before she signs the agreement, and she must sign freely and voluntarily, on competent independent advice, and with full knowledge of her rights. . . .
"Parties to an ante-nuptial agreement do not deal at arm's length with each other. Their relationship is one of mutual trust and confidence. They must exercise the highest degree of good faith, candor and sincerity in all matters bearing on the proposed agreement."
"An engagement to marry creates a confidential relation between the contracting parties and an ante-nuptial contract entered into after the engagement and during its pendency must be attended by the utmost good faith."
"The wife has a vested property right in the community property equal with that of her husband and in the income of the community, including salaries or wages of either husband or wife, or both." Occidental Life Ins. Co. v. Powers, 192 Wash. 475, 484, 74 P. (2d) 27, 114 A. L. R. 531.
There are other considerations which may bear upon the fairness of antenuptial contracts. These include the amount or respective values of the estates of the intended husband and wife, Warner v. Warner, 235 Ill. 448, 85 N. E. 630; the children of each by a prior marriage, Juhasz v. Juhasz, supra; and who prepared the agreement and the business experience of each, Mines v. Phee, 254 Ill. 60, 98 N. E. 260.
the contract, and that she freely and voluntarily entered into it. Respondents did not present such proof. The record discloses that, although Lucia had some business experience, she could neither read nor write. Furthermore, the contract was prepared by Angelo's attorney, while Lucia apparently was provided with no independent legal or other advice.
We have become convinced that the contract cannot stand. With the exception of the assets traceable to the corporation owned by Angelo prior to his marriage to Lucia, the property, itemized and discussed above, is community property.
None of the parties will be allowed costs on this appeal.
The decree is reversed, in part, and is remanded with instructions to enter a decree in conformity with the views expressed herein.
GRADY, C. J., SCHWELLENBACH, HAMLEY, and DONWORTH, JJ., concur.

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