Opinion ID: 2587710
Heading Depth: 3
Heading Rank: 2

Heading: The Product Liability Settlement Proceeds

Text: Kimberly received $1.6 million in a 1999 settlement with General Motors following the 1989 vehicular accident in which she suffered serious, long-term injuries. The superior court found that the settlement funds remained Kimberly's separate property. Patrick argues that the settlement funds were transmuted into marital property when they were deposited into jointly owned brokerage accounts. Because we discern no clear error in the superior court's finding, we affirm. Transmutation is the process by which one spouse's separate property becomes marital property, and occurs when a married couple demonstrates an intent, by virtue of their words and actions during marriage, to treat one spouse's separate property as marital property. [9] Commingling separate property with marital property does not automatically lead to a finding of transmutation. [10] But placing property in joint title raises a presumption of transmutation. [11] Patrick argues that although the funds were initially Kimberly's separate property, a presumption of transmutation arose when she commingled the funds with marital property in Patrick's business checking account and then placed them into the jointly held Merrill Lynch CMAs. Kimberly testified that the parties chose not to segregate the settlement proceeds from other funds within the CMAs for administrative convenience, to obtain better money managers, and to receive better brokerage rates. The rationale of better brokerage rates was disputed at trial, but there was evidence that the Aboods were able to obtain money management for the marital funds that would have been unavailable without combining them with Kimberly's settlement proceeds. [12] We have held that evidence of administrative convenience may rebut the presumption of transmutation. [13] In anticipation of the personal injury settlement, the Aboods consulted their neighbor, broker Margaret Price, but did not ultimately fund an account with her, choosing instead to invest through Merrill Lynch. Price testified that the Aboods wanted the money to be invested and to grow in value for the future. Price also testified that Kimberly spoke to her about a separate account and that they decided to create a joint account as a matter of convenience, and that they thought that it would just be easier to do the investments together, rather than to do separate pots of money. Kenneth Jones, the couple's financial advisor at Merrill Lynch, similarly testified that the Aboods wanted to save their money for the long term. The nature of the personal injury settlement is also relevant. We have held that the purpose for which the [tort] recovery is received controls its classification. [14] If the recovery is compensation for non-economic damages, the settlement is separate property of the claimant spouse. [15] This principle recognizes the intensely personal nature of these sorts of injuries, [16] and suggests that courts should be hesitant to find that a recipient intended to donate to the marriage the funds that she received in compensation for her injuries. Kimberly testified that the settlement was intended to compensate her for her physical injuries, which were described in detail in General Motors Corp. v. Farnsworth. [17] Thus, the personal nature of the settlement funds supports the superior court's conclusion that Kimberly did not intend to donate her personal property to the marriage. Kimberly testified that the funds were invested to provide for her future medical needs. This testimony reflects an intent to retain the funds as separate property. Patrick argues that setting aside money for Kimberly's future medical expenses was an investment for a marital purpose and indicates an intent to treat the funds as marital property. But this contention, absent evidence of an intent to benefit the marriage, is not so persuasive that the superior court was obliged to accept it. The potential for future medical expenses results from the discrete, premarital event for which Kimberly received the settlement money. Because Kimberly will incur future medical expenses attributable to the accident regardless of her marital status, the superior court could properly find a lack of intent by Kimberly to donate the settlement funds to the marriage. Kimberly's medical expenses not covered by insurance were paid out of marital funds and were not reimbursed with settlement funds. But the use of marital funds to pay a spouse's ongoing medical expenses does not compel a finding that the spouse intended to donate to the marriage the separate settlement proceeds the receiving spouse testifies were set aside to pay for future medical expense attributable to the premarital injury. Patrick argues that the superior court erred in according weight to Kimberly's trial testimony that she intended to preserve the settlement funds as separate property and that she assumed Patrick knew of this intent. We have said that, in attempting to give effect to the intention of the parties, looking to their testimony as to their subjective intentions or understandings will normally accomplish no more than a restatement of their conflicting positions. [18] Thus, self-serving testimony is ordinarily not probative. [19] But we have not foreclosed the consideration of trial testimony of prior intentions in all circumstances. Here, the circumstances and purposes of the settlement corroborate Kimberly's testimony. Furthermore, [i]t is the function of the trial court, not of this court, to judge witnesses' credibility and to weigh conflicting evidence. [20] It was not error for the superior court to credit this testimony. Patrick also argues that withdrawals from the CMAs for marital purposes and the use of the CMAs to secure a margin loan that was used for marital purposes demonstrate that Kimberly intended to treat the settlement funds as marital. The superior court found that the withdrawal came out of the remaining portion of the $300,000 marital fund contribution to the CMAs, and declined to find that the use of the CMAs to secure the margin loans converted the settlement funds into marital property. The superior court's finding that the withdrawals came from marital funds was the logical result of the finding that the CMAs contained both marital and separate funds. Withdrawals for marital purposes from accounts that contain funds from both separate and marital sources are not inconsistent with the continued existence of both separate and marital property in the accounts. [21] The superior court's finding that the withdrawals came out of marital funds was not clearly erroneous. [22] We considered the effect of using separate property to secure margin loans for marital purposes in Gardner v. Harris. [23] We held there that this use did not automatically transmute the separate property into marital property. [24] Patrick argues that Gardner is inapposite here because the property in Gardner was bonds, whereas here the property is fungible money. This argument is without merit. As we will see below, funds in the CMAs are traceable to Kimberly's separate settlement funds. Because a fact finder can distinguish between funds attributable to the settlement proceeds and funds from other sources within the jointly held CMAs, we discern no meaningful distinction between the funds in this case and the corpus of the bonds in Gardner. Nor did Patrick's participation in research into investment options and limited direction of investments compel a finding that Kimberly intended to treat the settlement funds as marital property. Rather, Patrick's participation in meetings with financial advisors after the funds were invested at Merrill Lynch demonstrates an appropriate involvement in the oversight of the marital funds. In Gardner, the non-owning spouse had more control over the funds than Patrick could exercise here. [25] Furthermore, Kenneth Jones testified that he would regularly recommend strategies that Kimberly and Patrick would then approve. This is not active management by Patrick that would compel a finding of transmutation. [26] We therefore cannot say that the superior court's finding that Kimberly did not intend to treat the settlement funds as marital property was clearly erroneous. But even property that the owner intended to remain separate may be marital if it is inextricably commingled with marital property. [27] We must therefore determine whether the disputed Merrill Lynch funds were traceable to the settlement check. When classifying secondary assets, courts `must first identify the specific asset from which it was derived (the source asset), and then determine the classification of that asset.' [28] When the source asset is also secondary property, tracing continues until either a separate or a marital primary source asset is found. [29] Separate property may be traceable to its separate source despite being mixed with marital property in the same secondary asset. [30] To characterize a mixed secondary asset, the superior court must determine the character of each source asset and the amount of value each source contributed to the mixed whole. [31] The marital and separate interests in a mixed secondary asset are ordinarily in the same ratio as the marital and separate contributions used to acquire the asset. [32] The funds in the Merrill Lynch CMAs were deposited in a single transaction from Patrick's checking account. The checking account was a mixed asset, containing both the settlement funds and marital proceeds from Knik Sweeping. The $1.9 million transferred from the checking account to the CMAs consisted of $1.6 million from Kimberly's settlement check from GM and $300,000 in marital funds already in the checking account. The funds in the Merrill Lynch CMAs were therefore readily traceable to primary separate and marital sources. The contribution ratio dictates that 16/19 of the CMA funds are Kimberly's separate property and 3/19 of the CMA funds are marital property. Patrick argues in passing that $76,000 of the $300,000 transferred from the Knik Sweeping checking account to the Merrill Lynch CMAs is his separate property. The $76,000 was transferred into the Knik Sweeping checking account shortly before the $1.9 million was transferred to the Merrill Lynch CMAs. Patrick testified that the $76,000 was attributable to his separate property, but did not demonstrate that it was deposited in the CMAs or that he intended to maintain it as separate property after placing it under joint title. The superior court therefore did not clearly err in finding the entire $300,000 to be marital property. Likewise, the superior court did not clearly err in finding that Kimberly did not intend to transmute the settlement proceeds into marital property. We therefore affirm its finding that the settlement funds remained Kimberly's separate property.