Court Opinion

ID: 880071
Source: CourtListenerOpinion
Date Created: 2013-06-04 23:57:21.179261+00
Date Added: 2024-06-11T12:37:02.360690
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF IDAHO
                                  Docket No. 39224

 AMY S. BARUCH,                                          )
                                                         )   Boise, April 2013 Term
       Plaintiff-Respondent,                             )
                                                         )   2013 Opinion No. 66
 v.                                                      )
                                                         )   Filed: May 31, 2013
 WILLIAM P. CLARK,                                       )
                                                         )   Stephen W. Kenyon, Clerk
     Defendant-Appellant.                                )
 _____________________________________

          Appeal from the district court of the Fourth Judicial District of the State
          of Idaho, Ada County. Hon. Kathryn Sticklen, District Judge.

          The judgment of the district court is affirmed.

          Cosho Humphrey, LLP, Boise, attorneys for Appellant.

         Bevis, Thiry & Schindele, PA, Boise, attorneys for Respondent.

                                   ________________________________
      W. JONES, Justice
                                        I. NATURE OF THE CASE
         This is an appeal from a judgment of the magistrate court concerning the division of
certain property pursuant to the divorce between Appellant, Bill Clark (“Bill”), and Amy Baruch
(“Amy”). Bill appealed the magistrate court’s decision to the district court, which affirmed the
magistrate’s decision. Bill appeals to this Court.
                           II. FACTUAL AND PROCEDURAL BACKGROUND
         Bill Clark and Amy Baruch were married on December 1, 2000. Amy filed for divorce on
January 28, 2009. Prior to entering the marriage, Bill and Amy had significant personal and real
property. Amy separately owned a home in Boise, which sold just prior to her marriage to Bill.
Amy received $108,047 from the sale of her separate home. Meanwhile, Bill owned a home in
Boise as his separate property. That home was ultimately conveyed to the community when it

                                                     1
was refinanced in 2001 and 2002. The $108,047 proceeds from the sale of Amy’s separate home
were used to purchase a community vacation home in McCall (“McCall cabin”). 1
        Before and during the marriage, Bill was self-employed in the real estate development
business. His primary income was from his company, Clark Development, LLC. In addition to
Clark Development, Bill developed property through various other business entities. These
entities included Veltex Building, LLC 2, which was formed to acquire the site on which BED
Investments, LLC, 3 would build and develop a residential and office condominium complex
(“Veltex building”). Though Bill acquired an interest in these entities before the marriage, it is
unclear when precisely he acquired his interests. 4 Bill maintains that the planning for the Veltex
building was completed before his marriage to Amy in 2000. At the time of marriage, Bill owned
neither the site on which the Veltex building was built nor the building itself; rather, he owned an
interest in the various entities that owned the property. Ground was broken for the Veltex
building sometime after September 2002, and the Veltex building was completed in 2004.
        Bill only received two distributions related to the Veltex building, and both distributions
were received during the marriage. In October 2005, BED Investments received $260,800 from
the sale of units in the Veltex building. Bill had an IRA before entering the marriage (“Schwab
3714”). Both separate and community funds were deposited into Schwab 3714. The magistrate
court found Schwab 3714 to be “Bill’s Working Account.” 5 The distributions from the Veltex
building were deposited into the Schwab 3714 account. In February 2007, Veltex deposited
another $342,149 into the Schwab 3714 account on Bill’s behalf.
        On March 28, 2007, Bill and Amy purchased a condominium in Ketchum, Idaho
(“Ketchum condominium”). The condominium was purchased for $975,000. During closing, the
parties submitted checks in the amount of $30,000 and $175,539 as a down payment. Bill claims
that the down payment on the condominium was paid using his separate funds that were

1
  The magistrate court found the McCall cabin to be a community asset. That finding is not challenged on appeal.
2
  The magistrate found Veltex Building, LLC to be separate property with a value of $1,464.
3
  In April of 2008, BED Investments was dissolved.
4
  The magistrate court noted that at trial Bill testified that BED Investments was a partner in Veltex at the time
Veltex was established, and that he acquired an interest in BED Investments at the same time it acquired an interest.
Bill testified that these events occurred in 1997. However, Veltex was not established until October 29, 1998, and
BED Investments was not formed until January 22, 1999.
5
  We note that an IRA recognized as a qualified account under the Internal Revenue Code has various restrictions on
their usage. See 2012 I.R.S. Publication 590. Whether Bill’s multiple IRAs in this case were qualified accounts
under the Internal Revenue Code and whether Bill’s use of his various accounts was appropriate is not the subject of
this opinion. We express no opinion on the propriety of Bill’s IRA accounts. In this opinion, we are simply
concerned with division of the assets in the marital estate under the community property laws of Idaho.

                                                         2
proceeds from the February 7, 2007, Veltex distribution in the amount of $342,149 (“Veltex
distribution”). Amy claims that she and Bill anticipated using the proceeds from the sale of the
McCall cabin to pay down the loan on the Ketchum condominium. In September 2007, the
McCall cabin was sold and the proceeds of $231,682 from the sale were deposited into Schwab
3714. Amy was unable to adequately trace the proceeds of her separate Boise home, which was
used to purchase the McCall cabin; therefore, the proceeds from her home were treated as
community property.
           At the time of the marriage, Bill owned an IRA through Charles Schwab, account number
ending in 3713 (“Schwab 3713”). At the time of marriage, the account was valued at $386,636.
At the time of trial, the account was valued at $354,350. During the marriage, the community
made contributions to Schwab 3713 totaling $207,313. In 2005, Bill effected a transfer from
Schwab 3713 in the amount of $100,000. This money was transferred to Pensco Trust 6, which
invested money into Pearson Partners 7, an entity in which Bill was a partner, for purposes of
building a subdivision in McCall. In 2007, Bill received a distribution from Schwab 3713 in the
amount of $1,495. In 2008, Bill effected another transfer from Schwab 3713 in the amount of
$150,000. This money was transferred to Pensco Trust, which invested in Meyer Clark, LLC 8,
which loaned money to Crescent Rim, LLC. This money appears to have been used for
additional collateral on a project with which Bill was involved. Amy did not agree to advancing
funds to the Crescent Rim project. In 2009 after the divorce began, Bill took a distribution of

6
    It appears from the record that the transfer to Pensco Trust was to a self-directed IRA.
7
    The magistrate court described Pearson Partners as follows:

                     On August 4th, 2005, Bill registered Pearson Partners LLC with the Idaho Secretary of
           State, and on the same day, entered into an operating agreement as the LLC’s managing
           partner . . . Bill took an interest in the LLC through two separate entities; Clark Development
           LLC, which was given credit for $100,000 contribution (characterized at the time as “sweat
           equity”), and Pensco Trust, William Clark IRA, which actually contributed $100,000. Through
           each entity he acquired a 10% interest in the LLC, which was later increased to 12% for each by
           way of the amended operating agreement entered into on December 23rd, 2008.
                     The source of the funds used to invest on behalf of Pensco was, as discussed elsewhere
           herein, the Schwab 3713 account.
8
  Meyer Clark, LLC was a partnership with Steve Meyer for the purpose of investing in the Crescent Rim project.
The only asset is a loan from Meyer Clark, LLC to Crescent Rim, LLC for $150,000. The funding for this loan
originated from Schwab 3713. It appears that $150,000 from Schwab 3713 was transferred to Meyers Clark through
Pensco Trust in 2008. This note was found worthless. The magistrate court found that the post-TRO attempted
transfer to Crescent Rim from Schwab 3713 was ultimately not effective and the $150,000 that Bill attempted to
pass through Sterling Trust was ultimately returned to Schwab 3713. The magistrate court found that Meyers Clark
was Bill’s separate property and had no value. This decision is not appealed.

                                                             3
$34,611 from Schwab 3713, of which $28,000 was invested in Pearson Partners to pay down a
loan. In addition to the self-directed IRA at Pensco Trust, Bill also had a self-directed IRA with
Sterling Trust, which he also used as a conduit to pass money from the Schwab 3713 account
into his various projects. At the time of marriage, Amy had a 401(k) with a balance of $74,776.
At the time of divorce, through community contributions, the value of the 401(k) increased to
$479,274.
       On January 28, 2009, Amy filed for divorce. The trial in this matter took place on March
31, 2010; April 1, 2010; and April 2, 2010. On July 26, 2010, the magistrate court issued its
Findings of Fact and Conclusions of Law. The Decree of Divorce was entered on August 10,
2010. The magistrate court concluded that the Schwab 3713 and Schwab 3714 accounts were
community property because the complex series of withdrawals in and out of these accounts,
combined with community contributions, made it unable to track whether the transfers or the
market affected the value of the accounts. The magistrate court also rejected Bill’s claim for
reimbursement of funds drawn from Schwab 3714 to make the down payment on the Ketchum
condominium. The magistrate court found that the money from Schwab 3714 originated from the
Veltex building, which the magistrate court found to be community income. Thus, it found the
funds drawn from Schwab 3714 to pay the down payment on the Ketchum condominium were
community funds and that Bill was not entitled to reimbursement. But assuming the funds were
actually separate, the magistrate court found that Bill failed to adequately trace the separate
property.
       On August 16, 2010, Bill filed a Motion to Alter or Amend Findings of Fact and
Conclusions of Law. After a hearing held on September 13, 2010, the magistrate court issued the
Judgment and Order Re: Motion to Alter or Amend Findings of Fact and Conclusions of Law
and Judgment on September 21, 2010. That judgment denied Bill’s motion to alter or amend the
judgment beyond making slight clerical corrections. On September 24, 2010, the magistrate
court reissued the same order merely correcting the title.
       On November 4, 2010, Bill filed a Notice of Appeal. On August 25, 2011, the district
court entered a Memorandum Decision and Order affirming the magistrate court. On September
28, 2011, Bill filed a Notice of Appeal to this Court.
                                      III. ISSUES ON APPEAL

                                                 4
   1. Whether the district court erred in affirming the different methods of valuation the
        magistrate court used in valuing and distributing Amy’s 401(k) and the Schwab 3713
        account.
   2. Whether the court properly characterized the Veltex distribution as income presumptively
        belonging to the community.
   3. Whether Amy is entitled to attorney fees on appeal.
                                    IV. STANDARD OF REVIEW
        When this Court reviews a decision rendered by a district court acting in its appellate
capacity, it considers the decision of the district court. Dunagan v. Dunagan, 147 Idaho 599,
601, 213 P.3d 384, 386 (2009); Losser v. Bradstreet, 145 Idaho 670, 672, 183 P.3d 758, 760
(2008). This Court exercises free review of the legal issues analyzed by the district court acting
in its appellate capacity. Carter v. Zollinger, 146 Idaho 842, 844, 203 P.3d 1241, 1243 (2009).
        Division of community property in a divorce action is squarely within the
        discretion of the trial court. Review of a lower court’s exercise of discretion is
        conducted under a three-tiered inquiry: (1) whether the lower court rightly
        perceived the issue as one of discretion; (2) whether the court acted within the
        outer boundaries of such discretion and consistently with any legal standards
        applicable to specific choices; and (3) whether the court reached its decision by an
        exercise of reason.
Dunagan, 147 Idaho at 601, 213 P.3d at 386 (internal citations omitted).
                                            V. ANALYSIS
   A.      The district court did not err in affirming the different methods the magistrate
           court used to value and divide Amy’s 401(k) and the Schwab 3713 account.
        Bill argues that the district court erred in affirming the magistrate court’s characterization
of Schwab 3713 as community property. Bill maintains that the district court should have
awarded Bill and Amy each the value of their respective retirement accounts as of the date of
marriage as their separate property. Since the value of Schwab 3713 at the time of divorce was
less than it was at the time of marriage, Bill claims he should have been awarded the entire value
of the account as his separate property. Bill further challenged the conclusions of both the district
and magistrate courts that he consented to the treatment of Amy’s 401(k) as her separate
property. Ultimately, Bill asserts that Schwab 3713 should have been classified as his separate
property because the magistrate court classified the value of Amy’s 401(k) at the time of
marriage as separate property; thus, it should have done so here.

                                                  5
       Amy argues that Bill’s contentions that he is entitled to the value of Schwab 3713 as of
the date of marriage as separate property ignores the market fluctuations of the value of the
account and the extensive assets that were transferred from Schwab 3713 into other investments.
Amy maintains that Bill did in fact consent to the treatment of her 401(k) as separate property as
a matter of tactics. Finally, Amy maintains that because of the complex series of transactions in
and out of Schwab 3713, it was not possible for Bill to trace his separate property and the
changes of value of Schwab 3713 with any degree of certainty.
       The district court affirmed the magistrate court’s classification of the entirety of Schwab
3713 as community property. The district court held that the magistrate court did not improperly
apply the cases of Maslen v. Maslen, 121 Idaho 85, 822 P.2d 982 (1991) and McCoy v. McCoy,
125 Idaho 199, 868 P.2d 527 (Ct. App. 1994). The district court noted that those cases stand for
the proposition that no strict, inflexible rule governs the treatment of retirement accounts, and the
district court noted that the facts of those cases were different from the current matter where
extensive transfers occurred. Because of the complexity of Bill’s transactions with Schwab 3713,
the district court found that it was not able to trace the funds of Schwab 3713 and that Bill was
adequately compensated for his pre-marriage interest in the account through his investments.
       Idaho Code § 32-903 provides that all property owned by a spouse before marriage and
property acquired after marriage with the proceeds of separate property remain that spouse’s
separate property. However, all other property acquired after marriage—including income on
separate property—is community property. I.C. § 32-906. In Idaho, “income derived during a
period of marriage from the efforts, labor and industry of the parties constitute community
assets.” Hiatt v. Hiatt, 94 Idaho 367, 368, 487 P.2d 1121, 1122 (1971). Because all property
acquired during marriage is presumed to be community property, a party wishing to show that
assets acquired during marriage are separate property bears the burden of proving with
reasonable certainty and particularity that the property is separate. Barton v. Barton, 132 Idaho
394, 396, 973 P.2d 746, 748 (1991). “Commingling of separate and community property does
not convert the separate property to community property where the separate property can be
identified through either direct tracing or accounting.” Id. (citing Houska v. Houska, 95 Idaho
568, 570, 512 P.2d 1317, 1319 (1973); Stahl v. Stahl, 91 Idaho 794, 430 P.2d 685 (1967); Evans
v. Evans, 92 Idaho 911, 453 P.2d 560 (1969)).

                                                 6
         1.       Amy’s separate property interest in her 401(k) was not erroneously valued under
                  Maslen.
         Both the district court and the magistrate court concluded that Bill stipulated that he was
not claiming an interest in Amy’s retirement account because he told the court he was not
claiming such an interest. Oral stipulations of the parties in the presence of the court are
generally held to be binding, especially when acted on or entered in the court records. Kohringer
v. Robertson, 137 Idaho 94, 99, 44 P.3d 1149, 1154 (2002).
         The district court relied upon an interaction between Bill and the magistrate in which the
magistrate asked Bill whether he was claiming “any interest in that IRA,” to which Bill
responded “No, I don’t claim any interest in it.” 9 Bill argues that the magistrate misunderstood
which IRA Bill was referencing, and Bill claims he was not actually referring to Amy’s 401(k).
However, in Bill’s post-trial brief, in his discussion of Amy’s 401(k), he states “[t]here was no
dispute that [Amy’s] 401(k) had a balance of $74,776 at the date of marriage . . . this balance
would also be allocated to [Amy] as her separate property . . . .” Bill’s rationale for arriving at
this conclusion was his analysis of Maslen and McCoy, which he maintains provides that the
difference between the account balances on the date of marriage and at the date of divorce
determines how much of the account is community property. Neither the district nor the
magistrate courts adopted this approach with regards to Schwab 3713, but used this approach
with respect to Amy’s 401(k).
         In Maslen, the husband asserted that the magistrate improperly distributed his retirement
account because the magistrate did not apply the time rule. 10 Instead the magistrate froze the
account balance at the time of marriage and then subtracted that amount from the account
balance at the time of divorce. 121 Idaho at 89–90, 822 P.2d at 986–87. This Court found that

9
   It appears from the record before this Court on appeal that the issue was whether Bill claimed an interest in the
separate property of Amy’s 401(k) as determined by the application of the Maslen approach. Neither the magistrate
nor district court interpreted this statement of Bill’s as a waiver of all of Bill’s interest in Amy’s 401(k). Indeed, on
the Court’s Property and Debt Schedule, the magistrate court, which relied on this representation of Bill’s, applied
the Maslen approach and found the entire 401(k) to be community property but for $74,776. Thus, the context of the
record indicates that this statement was used by the magistrate court in determining that Bill claimed no interest in
Amy’s separate property interest in the account as determined by Maslen, and not that Bill claimed no interest in the
account whatsoever.
10
    “The time rule determines community interest in a retirement fund by computing the ratio of the time of marriage
. . . during which pension benefits were earned, to the total years of service during which the pension was earned.
This percentage is then applied against the amount of retirement income to be received . . . one half of this amount
[is the non-employee spouse's] half of the community asset.” Maslen, 121 Idaho at 90 n.4, 822 P.2d at 987 n.4.

                                                           7
there is no one acceptable method of valuing community assets in retirement plans 11; rather, trial
courts are given broad discretion. Id. Particularly, this Court noted that there was no contention
that the change in value of the retirement account during the marriage was separate property. Id.
As such, the magistrate did not abuse his discretion in how he valued husband’s separate
property. Id.
            In McCoy the same valuation process described in Maslen was employed to value two of
wife’s retirement accounts. 125 Idaho at 205, 868 P.2d at 533. Wife’s interest in both of the
retirement accounts was acquired before her marriage. Id. The value of the retirement accounts
increased during the marriage. Id. The magistrate found the increase to be community property.
Id. The Court of Appeals upheld the application of the Maslen method because there was no
evidence of funds withdrawn from the accounts or contributions made during the marriage. Id.
Therefore, it was held that this approach traced the parties’ separate property in the accounts. Id.
            Here, the district court properly affirmed the magistrate court’s use of the Maslen
approach in its valuation of Amy’s 401(k). Like Maslen and McCoy, Amy’s interest in her
401(k) was obtained prior to her marriage. Likewise, her 401(k) increased in value during the
marriage as a result of community contributions. Amy’s 401(k) was also like the retirement
account in McCoy because there is no indication that any of the funds were transferred from the
account. Also, Amy did not claim the increase in the value of her 401(k) as separate property.
Additionally, Bill encouraged the use of the Maslen approach to distribute Amy’s 401(k), and
there is no indication that Amy objected to the use of this approach. Therefore, the magistrate
court did not abuse its discretion when it valued Amy’s 401(k) pursuant to Maslen.
            2.       Schwab 3713 was properly characterized as community property.
            Bill next contends that because Amy’s retirement account was distributed pursuant to
Maslen, so too should his account. The Maslen approach would have the effect of granting the

11
     In Maslen, this Court rejected a one-size-fits-all rule for dealing with the distribution of retirement accounts:

            Because the provisions of retirement plans vary so greatly from plan to plan, both in the manner of
            funding and also in the administration of the plans, and because the circumstances in each case are
            so varied, we decline to state a single inflexible rule for calculating the community interest or
            value of retirement plans . . . ‘it appears to us to be impractical—if not impossible—to formulate a
            categorical rule about the appropriate treatment of retirement accounts in dissolution of marriage
            cases. We conclude that it is a better policy to allow the trial court sufficient discretion to consider
            the circumstances in each case to determine the most equitable manner for determining and
            dividing the marital portion of pension benefits.
Maslen, 121 Idaho at 91, 822 P.2d at 988.

                                                               8
entire value of Schwab 3713 to Bill as separate property because the account was valued at less
than its value at the time of marriage.
       In Idaho, the characterization of property as community or separate depends on the date
and source of the property’s acquisition. Banner Life Ins. Co. v. Mark Wallace Dixson
Irrevocable Trust, 147 Idaho 117, 124, 206 P.3d 481, 488 (2009). “Commingling of separate and
community property does not convert the separate property to community property where the
separate property can be identified through either direct tracing or accounting.” Barton v. Barton,
132 Idaho 394, 396, 973 P.2d 746, 748 (1991).
       The source of the funds in Schwab 3713 and Amy’s 401(k) are different and were treated
differently during marriage—what applies to Amy’s 401(k) does not necessarily govern the
Schwab 3713 account. The district court did not err when it affirmed the magistrate court’s
classification of Schwab 3713 as community property. Bill had a separate property interest in
Schwab 3713 because he obtained his interest in the retirement account before marriage. At the
time of marriage, the separate property was valued at $354,350. Bill relied on Maslen and
McCoy for the proposition that because he entered the marriage with this separate property, he
should leave the marriage with this separate property. In both of those cases, the separate
retirement account, which received contributions from the community, increased in value and
funds were not transferred from that account. Here, however, the Schwab 3713 account did not
increase in value during the marriage. If the Maslen approach would have been used to value the
Schwab 3713 account—as urged by Bill—then the community would bear the entire risk of
investment: If the account increased in value, Bill would receive the initial value of the account
as separate property and share the increased value of the account with the community. If the
account decreased in value—as it did—then Bill can claim the whole amount of the account
while the community loses all of its contribution and thus bears the entire risk of investment.
       We hold that the magistrate properly distinguished Schwab 3713 from the retirement
accounts in Maslen and McCoy based on the complex series of transfers in and out of Schwab
3713. In both Maslen and McCoy, there were no transfers or withdrawals from the retirement
account—only contributions. Here, however, Bill used Schwab 3713 in union with his Pensco
Trust IRA and his Sterling Trust IRA to funnel money in and out of the Schwab 3713 account to
his development projects. Bill maintains that this Court should view these three accounts as one
single IRA. Consequently, Bill urges that this case would then be similar to Maslen and McCoy

                                                 9
because then no transfers were made from his account. This approach, however, overlooks the
reality that Bill managed three IRAs at separate entities. The mere fact that Bill was able to avoid
a tax consequence because he transferred money from Schwab 3713 into another IRA does not
render all three accounts as separate entities one account.
       Assuming, however, that these three accounts constituted effectively one IRA, were the
magistrate court to apply the Maslen approach, it would result in a windfall to Bill with him
being awarded $534,160 as his separate property. First, the magistrate court noted that the
Pensco Trust IRA was comprised of investments in Meyer Clark and Pearson Partners. These
investments were valued at $150,000. The only liquidity in the Pensco IRA was $1,619 in cash.
The magistrate court awarded the $150,000 investments to Bill and the $1,619 in cash to Amy.
Second, the Sterling Trust IRA was found to have a value of $29,810. It appeared to the
magistrate court that the value constituted an investment in an organization named Alpha
Lending, LLC. Again, $29,810 was awarded to Bill as his separate property. Third, Bill
maintains that he should receive the full $354,350 value of Schwab 3713 as his separate property
because Schwab 3713 is valued at less than it was before the marriage. This would result in a
separate property award of $534,160 to Bill. Applying the approach, as urged by Bill, would
result in a particularly egregious result given the community contribution of $207,313 into
Schwab 3713, which was used to fund Bill’s other IRAs.
       Finally, Schwab 3713 was commingled with both separate and community funds. These
funds were transferred in and out of this account to various projects on which Bill was working.
Bill failed to adequately trace the assets of Schwab 3713 to demonstrate which profits and losses
to the Schwab 3713 account belong to him as his separate property.
       We conclude that the district court properly affirmed the magistrate court’s valuation of
community property in Schwab 3713. Schwab 3713 was highly commingled with separate and
community property; was used to fund various other IRAs; and appears to have decreased in
value largely because of transfers into other IRAs awarded to Bill as his separate property.
Furthermore, as the district court noted, “Bill likely received what would have been separately
due [to] him from [Schwab 3713], by using the proceeds from it to finance his business ventures.
In other words, he had already received his separate benefit from [Schwab 3713], in the use of
these community funds for his separate business purposes . . . .” The district court is therefore
affirmed in its valuation of both Amy’s 401(k) and the Schwab 3713 account.

                                                 10
   B.      The Veltex distribution was properly classified as income and therefore
           community property.
        Bill argues that the magistrate court improperly characterized the distributions related to
the Veltex building as community property. Bill maintains that the distributions related to Veltex
building were capital gains and not income. Bill challenges the magistrate court’s conclusion that
the gains were the result of the labor of the community because the community was compensated
for the labor Bill expended when developing the Veltex building through a contract that Veltex,
LLC had with Clark Development, LLC.
        Amy argues that the magistrate court properly characterized the Veltex distributions as
community property because significant community effort was expended on the project during
the marriage. Amy contends the magistrate court properly characterized the distributions as
community because the presumption is that funds earned during marriage are community funds,
and Bill failed to overcome this presumption.
        The district court affirmed the magistrate court’s characterization of the Veltex
distributions as community property. The district court noted that even though Bill created the
plan for the development of the Veltex building before his marriage, he actually implemented the
plan during the marriage. The district court also noted that the distributions that ultimately
resulted from the Veltex building were not the result of the natural enhancement of the property,
but the gain in value was the result of the effort expended during the marriage.
        Idaho Code § 32-906(1) creates a presumption that all income earned from separate
property acquired during marriage is community property unless expressly provided otherwise.
The party challenging the classification of property acquired during marriage as community
property has the burden of overcoming that presumption. Mark Wallace Dixson Irrevocable
Trust, 147 Idaho at 124, 206 P.3d at 488; see also Weilmunster v. Weilmunster, 124 Idaho 227,
234, 858 P.2d 766, 773 (Ct. App. 1993). However, “as a general rule, though not absolute, a so-
called profit or gain from the sale of separate property occasioned by the natural enhancement in
the value of such property constitutes part of the separate estate.” Speer v. Quinlan, 96 Idaho
119, 127, 525 P.2d 314, 322 (1974). When it comes to valuing the enhancement of separate
property, this Court has held that “[a]s a general rule, the natural enhancement of value of
separate property during coverture does not constitute community property; however, to the
extent an enhancement in value is due to the community efforts, labor, industry or funds, it falls
into the community.” Id. “[I]f community efforts and ability have been expended in the conduct

                                                11
of a separate property business, a proper inquiry . . . is whether the community has received fair
and adequate compensation for its labor.” Id. at 128, 525 P.2d at 323.
         The district court properly affirmed the magistrate court’s characterization of the Veltex
distribution as income that belongs to the community. 12 Despite Bill’s assertion to the contrary,
the Veltex distribution was not a capital gain. A capital gain is “[t]he profit realized when a
capital asset is sold or exchanged.” Black’s Law Dictionary, at 237 (9th ed. 2009). Income is
“[t]he money or other form of payment that one receives . . . from employment, business
investments, royalties, gifts, and the like.” Black’s Law Dictionary, at 831 (9th ed. 2009). Here,
the magistrate court found it clear that Bill did not own either the Veltex building or the property
on which it sat. Rather, the Veltex distribution came from Bill’s interest in entities that
themselves owned the Veltex building. The distribution, therefore, cannot be a capital gain
because the profit was realized from the operations of the business entities that owned the Veltex
building. Bill did not realize this distribution by selling the building because he did not own it,
nor did he realize this distribution by selling his interest in the entities that owned the Veltex
building because he still holds an interest in those entities. Furthermore, the distribution from the
Veltex building was income because it was money that Bill realized from his business
investments in said entities. Income from separate property, received during marriage, is
community property. I.C. § 32-906.

12
          Bill argues that this it is improper to characterize the Veltex distribution as community property because it
is necessary for a party seeking the reimbursement of a community contribution to separate property to prove that
the community expenditures enhanced the value of the property. Bill relies largely on Bliss v. Bliss, 127 Idaho 170,
173, 898 P.2d 1081, 1084 (1995), for his proposition that the community must demonstrate how the value of the
property was enhanced.
          Bill’s reliance on Bliss and its progeny is misplaced. That case deals with a situation where the community
expends capital—not labor—or retained earnings, see Swope v. Swope, 122 Idaho 296, 302, 834 P.2d 298, 304
(1992), to improve separate property. That capital contribution, which is quantifiable, then enhances the separate
estate. In such a situation, this Court has held that “[t]he measure of reimbursement for community expenditures on
separate property is the increase in value of the property attributable thereto, not the amount of value of the
community contribution.” Bliss, 127 Idaho at 173, 898 P.2d at 1084 (emphasis added). Furthermore, the party
claiming reimbursement has the burden of proving the value of the enhancement. Id.
          The dispute in the current matter does not seek reimbursement for the value added to separate property
from community contributions; it is an issue of whether the income earned from separate property during the
marriage, while community labor was expended on the separate venture, is community. In such a situation where the
contribution is labor and not capital, this Court has made clear that the inquiry is into whether the community was
adequately compensated for the labor of a party. If not, it falls into the community. See Speer, 96 Idaho at 127, 525
P.2d at 322. When the community claims income and not reimbursement, Idaho statute presumes that income earned
during marriage is community property. In the present matter, the Veltex distribution was not retained earnings, nor
was the Veltex distribution a contribution from the community. Rather, it was income that was derived during the
marriage from the development of the Veltex building, which involved the labor of the community.

                                                         12
        The Veltex distribution did not result from the natural enhancement of Bill’s separate
property. First, Bill contends that all of the planning for the Veltex building was done prior to his
marriage. However, the magistrate court questioned Bill’s credibility because he struggled with
understanding his financial transactions and construction on the Veltex building did not
commence until well into the marriage. Second, Bill presented no evidence that his involvement
in the development of property ceased when the plan was complete. There was no evidence
demonstrating that Bill did not follow through with his developments while they were actually
being developed. Thus, the magistrate’s conclusion that the Veltex distribution was not the result
of a natural enhancement of value is supported by substantial and competent evidence. Bill did
not meet his burden of demonstrating that the Veltex distribution was separate property.
        The final question is whether the community was adequately compensated for the labor
of the community. Bill contends that he was compensated $8,500 per month from Clark
Developments, LLC, for his labor, including his labor on the Veltex building. The magistrate
court properly concluded that the community was not adequately compensated. There is no
indication that Bill’s payment from Clark Developments, LLC, was only for his work on the
Veltex building and not for his other projects. Additionally, Bill used community assets in the
Schwab 3713 account to invest in his development projects. Therefore, the magistrate court
could conclude that the community was not adequately compensated for his labor.
        Thus, the district court’s characterization of the Veltex distribution as community
property is affirmed. Because we hold that the district court’s characterization of the Veltex
distribution was not erroneous, we will not address Bill’s argument that he is entitled to
reimbursement of the down payment on the Ketchum condominium.
   C.      Attorney fees on appeal.
        Bill did not request attorney fees on appeal. Amy requests attorney fees on appeal
pursuant to I.C. § 12-121, and I.A.R. 41. The Court will award fees to a prevailing party in
certain limited circumstances as authorized by I.C. § 12-121. Owner-Operator Indep. Drivers
Ass’n v. Idaho Pub. Utils. Comm’n, 125 Idaho 401, 408, 871 P.2d 818, 825 (1994). But attorney
fees are not awardable as a matter of right. Id. They should only be awarded when the court
believes “that the action was pursued, defended, or brought frivolously, unreasonably, or without
foundation.” Id. Attorney fees will not be awarded for arguments that are based on a good faith
legal argument. E.g., Backman v. Lawrence, 147 Idaho 390, 401, 210 P.3d 75, 86 (2009). Amy is

                                                 13
not entitled to attorney fees because this appeal was not brought or pursued frivolously,
unreasonably, or without foundation.
                                        VI. CONCLUSION
       The district court is affirmed. Neither party is entitled to attorney fees on appeal. Costs on
appeal are awarded to Amy as the prevailing party.
       Chief Justice BURDICK, Justices EISMANN, J. JONES and HORTON CONCUR.

                                                14