Court Opinion

ID: 5650427
Source: CourtListenerOpinion
Date Created: 2022-01-11 22:32:30.23347+00
Date Added: 2024-06-11T08:38:33.623741
License: Public Domain

KENNARD, J., Concurring and Dissenting.
I agree with the majority that subdivision (b) of Family Code section 2640 permits a spouse, upon dissolution of marriage, to obtain reimbursement for separate property contributions not only from the property to which the contribution was originally made but also from property acquired later with funds traceable to the original contribution. As the majority explains, this result serves the legislative purpose underlying Family Code section 2640 to encourage spouses to freely contribute their separate assets to the marital community, secure in the knowledge that they may recover their separate property contributions if the marriage ends in dissolution.
I do not agree, however, with the tracing method that the majority adopts. In my view, the majority’s method is not only unnecessarily complicated and cumbersome, but it is also insufficiently protective of the separate property reimbursement right.
The point of disagreement is illustrated by this hypothetical. A husband contributes $50,000 of his separate property to pay down the indebtedness on community real property (Property A), resulting in a total community equity in Property A of $100,000. Later, the spouses borrow $50,000, conveying to the lender a second trust deed on Property A, thereby reducing the community’s equity in Property A to $50,000. The spouses use the $50,000 loan proceeds to purchase another parcel of real property (Property B). Later still, when the parties dissolve their marriage, Property A has become worthless while Property B retains its equity value of $50,000. How much of his $50,000 separate property contribution may the husband recover?
As I construe Family Code section 2640, after the husband made his separate property contribution to Property A, the whole of the community’s equity in Property A was burdened with the husband’s potential reimbursement claim. When part of that burdened equity was removed from Property A and invested in Property B, all of the funds so invested were likewise burdened with the husband’s potential reimbursement claim. Upon dissolution of the marriage, the husband could seek reimbursement from either Property A or Property B, the only limitation being that the husband could *926not obtain from Property B a sum greater than the amount of the loan proceeds invested in property B. In this hypothetical, accordingly, the husband could obtain the full $50,000 reimbursement from Property B.
By contrast, the majority would permit the husband to recover no more than $25,000 from Property B and would preclude any reimbursement for the balance. Because the husband’s separate property contribution to Property A represented only half of the equity value of Property A, the majority would allow him to trace only half of the loan proceeds to Property B (even though all of the equity in Property A was burdened with the husband’s reimbursement claim). The majority’s approach is thus more complex, because it requires a determination of the equity value of Property A at the time of refinancing and an apportionment of the loan proceeds, and it is less protective of spouses’ separate property reimbursement rights, because it permits those rights to be diluted when funds invested in one asset are later withdrawn through refinancing and spread among other community assets. Spouses may be hesitant to diversify their investments in this manner if they understand that the result will be a substantial weakening of their ability to obtain reimbursement for separate property contributions.
For these reasons, I am unable to concur in part II.C. of the majority opinion, entitled “Tracing Method.” To the extent that the majority’s disposition obligates to the trial court to follow the tracing method that the majority describes, I dissent.