Marriage of Ward-Johnson and Johnson





















Filed 1/28/13 Marriage of Ward-Johnson and Johnson CA4/3















>NOT TO BE PUBLISHED IN OFFICIAL REPORTS



California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.





IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



FOURTH
APPELLATE DISTRICT



DIVISION
THREE




>

In re the Marriage of WENDY D. WARD‑JOHNSON and TERRY M. JOHNSON.
WENDY D. WARD‑JOHNSON, Respondent, v. TERRY M. JOHNSON, Appellant.	G046598 (Super. Ct. No. 09D003833) O P I N I O N

Appeal from a judgment
of the Superior Court
of Orange County,
James L. Waltz, Judge.
Affirmed in part, reversed in part, and remanded with directions.

Jarvis, Krieger &
Sullivan and Robert A. Curtis for Appellant.

Snell & Wilmer and
Richard A. Derevan for Respondent.



* * *

INTRODUCTION

Terry M. Johnson appeals
from the judgment, which dissolved his marriage to Wendy D. Ward‑Johnsonhref="#_ftn1" name="_ftnref1" title="">^[1] and resolved the issues related to
support, custody, and property division.
Terry contends the trial court erroneously (1) upheld the validity
of an interspousal quitclaim deed he executed in Wendy’s favor as to real
property in Costa Mesa purchased by Terry and Wendy during the marriage (the
Santa Ana Avenue property), and (2) denied Terry’s request that the
community be reimbursed for the time, skill, and labor, which he devoted, as a
general contractor, to improving the value of two additional properties that
Wendy had acquired before the marriage and constituted her separate property.

We affirm the portion of
the judgment awarding the Santa Ana Avenue
property to Wendy as her separate property.
Substantial evidence showed Terry’s execution of the quitclaim deed
conveying his community property interest in the Santa
Ana Avenue property to Wendy was not the product
of undue influence.

We reverse the portion
of the judgment denying Terry’s request for reimbursement to the community for
the time, skill, and labor he devoted to Wendy’s separate property during the
marriage. The trial court found Terry
invested more than a minimal effort in the improvement of those
properties. We remand to the trial court
to determine the amount Wendy’s separate property increased in value as a
result of Terry’s efforts and to order reimbursement to the community accordingly.

FACTShref="#_ftn2" name="_ftnref2" title="">^[2]

Terry and Wendy were
married in September 2001, and separated, seven years and five months later, in
February 2009. They have one child who
was born in 2002. Before the marriage,
Wendy had acquired property on Aster Place in Costa Mesa (the Aster Place
property) and property on Congress Avenue in Costa Mesa (the Congress Avenue
property), both of which constituted her separate property; neither property
was encumbered by debt at the time of the marriage. For a period of time during their marriage,
Terry and Wendy lived at the Aster Place
property.

During the marriage,
Terry invested his time, skill, and labor during a six‑month period to
make substantial capital improvements to the Aster
Place property.
The judgment stated: “The 3
bedroom 3 bath home was remodeled into a 5 bedroom 4 bath residence. [Terry] also added a second story. Aster Place was enlarged by 800 to 900 square
feet. The capital improvements made by
[Terry] and others substantially increased the value of Aster Place.” Wendy obtained a loan secured by the Aster
Place property to pay for materials and subcontractors involved in making the
“substantial capital improvements” to the Aster Place property and to pay for
community living expenses.

During the marriage,
Terry also “used his labor and skills to make capital improvements to [the]
Congress Avenue” property.

In 2002, Wendy and Terry
purchased the Santa Ana Avenue property.
In 2003, Wendy and Terry had a conversation about Terry’s
infidelity. Terry told Wendy he would
show her that he was committed to their marriage by signing a deed transferring
his interest in the Santa Ana Avenue property to her. Wendy did not take any action at that time.

In July 2004, Wendy
again confronted Terry about his infidelity.
He told her to have a quitclaim deed prepared for the Santa Ana Avenue
property and he would sign it. Seven to
10 days later, Wendy had an escrow company prepare a quitclaim deed that Terry
later signed.

It had been Terry’s idea
to convey his interest in the Santa Ana Avenue property to Wendy to “prove that
[he was] not going anywhere”; Wendy never asked Terry to sign the quitclaim
deed. Although Wendy was angry, she did
not threaten to leave Terry or suggest that “something else would happen” if he
did not sign the deed. After Terry
signed the deed, Wendy kept it in her files.
Terry did not tell Wendy that the quitclaim deed could only be used if
he filed for divorce. She never promised
Terry she would not use the quitclaim deed against him unless he filed for
divorce.

In 2009, Wendy filed a
petition for dissolution of the marriage.


PROCEDURAL HISTORY

Following a trial and
the court’s issuance of a statement of decision, judgment was entered
dissolving the marriage and resolving custody, support, and property division
issues. The judgment awarded Terry and
Wendy joint legal and physical custody of their child, and awarded Wendy child
support but not spousal support.

As pertinent to this
appeal, the judgment explained the trial court’s reasons for concluding that
Terry had effectively executed a quitclaim deed and thereby relinquished his
community property interest in the Santa Ana Avenue property. The judgment also set forth the court’s
reasons for denying Terry’s claim for reimbursement to the community for the
time, skill, and labor he invested to improve the Aster Place property and the
Congress Avenue property, which were both indisputably Wendy’s separate
property.

Terry appealed from the
judgment.

DISCUSSION

I.

The Trial Court Did Not Err by Concluding the Santa Ana Avenue
Property Was Wendy’s Separate Property; Terry’s Quitclaim Deed Was Valid and
Not Procured by Undue Influence.

Terry argues the trial
court erred by concluding he quitclaimed his community interest in the Santa
Ana Avenue property because Wendy failed to rebut the presumption that Terry’s
execution of the quitclaim deed was the product of undue influence. For the reasons we explain, Terry’s argument
is without merit.



A.

Applicable Legal Principles

“Although spouses may
enter transactions with each other (Fam. Code, § 721, subd. (a)),
such transactions ‘are subject to the general rules governing fiduciary
relationships which control the actions of persons occupying confidential
relations with each other. This
confidential relationship imposes a duty of the highest good faith and fair
dealing on each spouse, and neither shall take any unfair advantage of the
other. This confidential relationship is
a fiduciary relationship subject to the same rights and duties of’ unmarried
business partners, including the right of access to records and information
concerning their transactions. (Fam.
Code, § 721, subd. (b).) [¶]
Because of this, our courts have long held that when an interspousal
transaction advantages one spouse, public policy considerations create a
presumption that the transaction was the result of undue influence. [Citation.]
A spouse who gained an advantage from a transaction with the other
spouse can overcome that presumption by a preponderance of the evidence.” (In re
Marriage of Starr (2010) 189 Cal.App.4th 277, 281, fn. omitted.)



B.

The
Trial Court’s Findings

The judgment explains
the trial court’s conclusion that Wendy rebutted the presumption that the
quitclaim deed was the product of undue influence. The judgment states in pertinent part: “On July 21, 2004 [Terry] executed a
Quitclaim Deed releasing all of his right, title and interest in the Santa Ana
Avenue property to [Wendy]. During the
trial the parties offered polarized versions of the circumstances surrounding
the execution of the Quitclaim Deed. [¶]
The court finds that [Wendy]’s version of the circumstances surrounding the
preparation and execution of the Quitclaim Deed was more credible than
[Terry]’s version of events. [Terry]
knowingly and willingly signed the Quitclaim Deed and he did so after knowing
its contents and full meaning. The lack
of consideration for the execution of the Quitclaim Deed is not legally
significant. [Wendy] proved to the court
she did not take oppressive or unfair advantage of [Terry]’s alleged distress
over his act or acts of infidelity.
[Wendy] proved she did not engage in any coercive persuasion influencing
[Terry] to execute the Quitclaim Deed.
[Wendy] proved to the court she did nothing to gain any unfair advantage
over [Terry] regarding the decision to sign the Quitclaim Deed.”

The judgment further
states:

“The execution of the
Quitclaim Deed changed the legal character of the Santa Ana Avenue property
from community property to [Wendy]’s separate property. The execution of the Quitclaim Deed by
[Terry] advantaged [Wendy] and triggered a rebuttable presumption of undue
influence. [Wendy] has overcome that
rebuttable presumption of undue influence by a preponderance of the
evidence. [Wendy] produced substantial
and satisfying evidence that:

“1. [Terry]
executed the Quitclaim Deed freely and voluntarily free of coercion or
persuasion.

“2. [Terry]
executed the Quitclaim Deed with full understanding of the pertinent facts.

“3. The Quitclaim
Deed was not a complex document. Its
contents did not include words of special meaning requiring explanation. The words and phrases were ordinary and easy
to understand.

“4. At the
time of execution [Terry] was 45 years old, an experienced tradesman in general
contracting and given his age, training and work experience it is more likely
than not that he understood its legal significance. [Terry] did not claim otherwise at trial.

“5. Above
[Terry]’s signature on the Deed was the following statement:

“‘It is the expressed
intent of the Grantor, being the spouse of the Grantee, to convey all right,
title and interest of the Grantor, community or otherwise, in and to the herein
described property to the Grantee as her sole and separate property.’

“6. The
change of character statement is plain on its face. The change of character statement is easily
understood and not subject to vagueness or ambiguity.

“7. When
reconciling the polarized testimony [Wendy] was more credible than
[Terry]. The court is persuaded that
[Wendy] did not threaten or pressure [Terry] into signing the deed or threaten
to withhold access to [their child]. To
the extent [Terry] testified otherwise he was not credible.

“8. There was
no evidence that [Wendy] harangued and berated [Terry] over his
infidelity. The court rejects [Terry]’s
claim that [Wendy] ordered him to sign the Quitclaim Deed. The court does accept [Terry]’s testimony
that he executed the Quitclaim Deed as an act of penitence. However, [Terry]’s actions were self directed
and he now owns the consequences.
[Terry]’s claim that [Wendy] required the signing of the Quitclaim Deed
in exchange for forgiveness, even if true, does not constitute undue influence
under the circumstances. There was no
evidence that [Wendy] withheld access to [their child] in exchange for the
Quitclaim Deed. Neither party suggested
that there was any physical, emotional or psychological abuse and both parties
presented as mentally strong individuals.
Neither of the parties is infirm or easily intimidated.

“9. [Terry]
has been in the trades all of his adult life.
He is a man of grit and determination and not easily intimidated and
certainly not intimidated by [Wendy].

“The court rules that
the Santa Ana Avenue property is assigned to [Wendy] as her sole and separate
property without charge or offset.”



C.

The Trial Court Did Not Err by Finding Wendy’s Testimony Credible and
Concluding She Rebutted the Presumption of Undue Influence.

Substantial evidence
supported the trial court’s findings in support of its conclusion that Wendy
had rebutted the presumption Terry had signed the quitclaim deed as a result of
undue influence. Wendy testified that
over the course of a year, Terry twice offered to sign a quitclaim deed,
conveying his interest in the Santa Ana Avenue property, to demonstrate his
commitment to their marriage. Signing
the quitclaim deed was his idea, not hers.
About a week after Terry offered to sign a quitclaim deed, and as Terry
directed, Wendy had the quitclaim deed prepared. Terry signed it. Wendy testified that she was angry about
Terry’s infidelity, but she did not threaten to leave him, or otherwise
threaten him, to secure his signature on the quitclaim deed.

Terry testified Wendy
told him that she would not “file” the quitclaim deed unless he filed for
divorce. The trial court, however, found
Wendy’s testimony more credible than Terry’s testimony, and believed her
testimony that there were no conditions attached to Terry’s execution of the
quitclaim deed. Nothing in the record
shows Wendy’s testimony was inherently incredible or otherwise improperly
relied upon by the court.

Terry argues that
Wendy’s testimony she was angry during their July 2004 “emotional conversation”
shows Terry “was not thinking clearly when he illogically appeared to forfeit
100% of his interest in the only property he owned and one that he had just
devoted hard labor to substantially improve.”
Terry’s argument continues: “The
emotional gesture to appease his angry wife was not the product of a knowing,
intelligent, and voluntary waiver of his community property interest.”

But the trial evidence
showed Terry had offered to sign a quitclaim deed about one year before he
signed the quitclaim deed at issue in this case. This evidence directly undercuts Terry’s
argument that he suddenly executed a quitclaim deed in a fit of emotion. Furthermore, Terry does not challenge the
trial court’s findings contained in the judgment, which further support its
conclusion that Wendy rebutted the presumption of undue influence. These findings include the following: Terry executed the quitclaim deed with “full
understanding of the pertinent facts”; the quitclaim deed itself contained
language that was “ordinary and easy to understand”; Terry was not intimidated
by Wendy; and, given Terry’s age, training, and work experience, it was “more
likely than not that he understood [the quitclaim deed’s] legal
significance.”

We find no error.



II.

The Community Was Entitled to Reimbursement for the Time, Skill, and
Labor Terry Invested to Substantially Improve Wendy’s Separate Property.

In his opening brief,
Terry argues, “equity requires that Terry reap some financial benefit from his
efforts improving” the Aster Place property and the Congress Avenue property. (Underscoring, boldface, & some
capitalization omitted.) For the reasons
we explain, we agree the community was entitled to reimbursement for Terry’s
efforts during the marriage to substantially increase the value of Wendy’s
separate property.

In In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 852 (>Dekker), the appellate court, following
the California Supreme Court’s decision in Pereira
v. Pereira (1909) 156 Cal. 1, 7, held “where more than minimal community
effort combines with a separate capital investment to increase the value of the
separate investment, the court must determine the amount of the increase
attributable to the capital, and the amount attributable to community
effort.” In Dekker, the husband claimed a community interest in a corporation
that was formed during the marriage using $1,000 of the wife’s separate
property. (Dekker, supra, at
pp. 846‑847.) At the time of
the dissolution of the marriage, the corporation’s value had increased to
almost $1 million due to the husband’s “effort, expertise and contacts.” (Id.
at pp. 849, 846.) Applying the
doctrine of equitable apportionment, the appellate court rejected the wife’s
argument that the community was not entitled to reimbursement for the husband’s
efforts which had increased the value of the corporation. (Id.
at pp. 850‑852.)

The appellate court in >Dekker, supra, 17 Cal.App.4th at pages 850‑851, explained: “[P]roperty acquired prior to marriage is
separate, while property acquired during the marriage is presumed community
property. [Citations.] Income from separate property is separate,
the intrinsic increase of separate property is separate, but the fruits of the
community’s expenditures of time, talent, and labor are community
property. [Citations.] [¶] Indeed, the basic concept of community
property is that marriage is a partnership where spouses devote their
particular talents, energies, and resources to their common good. [Citation.]
Acquisitions and gains which are directly or indirectly attributable to
community expenditures of labor and resources are shared equally by the
community. [Citation.] [¶] Where community efforts increase the
value of a separate property business, it becomes necessary to quantify the
contributions of the separate capital and community effort to the
increase. [Citation.] It is well settled in California that income
produced by an asset takes on the character of the asset from which it flows. Thus, rents, issues and profits are community
property if derived from community assets, and separate property if derived
from separate assets. [Citations.]”

The Dekker court continued: “In >Pereira [v.] Pereira, >supra, 156 Cal. at page 7, the
California Supreme Court first announced the rule that where a husband owns a
separate property business and devotes his efforts to the enterprise, there
must be an apportionment of the profits.
[Citations.] [¶] Viewing the
language cited in Pereira in light of
California’s partnership model of marriage, the necessity of apportionment
arises when, during marriage, more than minimal community effort is devoted to
a separate property business.
[Citations.] [¶] The community is
entitled to the increase in profits attributable to community endeavor. [Citations.]
Accordingly, courts must apportion profits derived from community effort
to the community, and profits derived from separate capital are apportioned to
separate property.” (>Dekker, supra, 17 Cal.App.4th at pp. 851‑852, fn. omitted.)

The Dekker court concluded: “A
fair reading of Pereira supports the
view that where more than minimal community effort combines with a separate
capital investment to increase the value of the separate investment, the court
must determine the amount of the increase attributable to the capital, and the
amount attributable to community effort.
[Citation.] [¶] Here, [the
corporation] was started during the marriage.
[The wife] was issued all [the corporation’s] stock, valued at
$1,000. The commissioner found the stock
was [the wife]’s separate property. She
and [the husband] were the only officers of the corporation. [The husband] devoted 100 percent of his
effort to building [the corporation] and was primarily responsible for its
success. We hold that the trial court’s
application of equitable apportionment to the increased value of the
[corporation’s] stock is supported by substantial evidence.” (Dekker,
supra, 17 Cal.App.4th at
p. 852.)

A treatise on California
family law notes: “[A]pportionment
issues most often arise where community effort is devoted to a separate
property business. But the right to
apportionment of profits is not dependent upon the nature of the underlying
property. The same rules apply, e.g.,
when a spouse uses industry and skill during marriage to generate a profit from
separate property real estate or security investments” and are not affected by
which spouse owns the underlying separate property. (Hogoboom & King, Cal. Practice
Guide: Family Law (The Rutter Group
2012) ¶¶ 8:337 to 8:338, p. 8‑84.11 (rev. #1, 2012).)

Here, the trial court
found that Terry had improved Wendy’s separate property through his time,
labor, and skill. As to the Aster Place
property, the judgment stated: “Using
[Terry]’s labor and skill, in over a period of approximately six months,
[Terry] made substantial capital improvements to Aster Place including the
following: [¶] The 3 bedroom 3 bath home
was remodeled into a 5 bedroom 4 bath residence. [Terry] also added a second story. Aster Place was enlarged by 800 to 900 square
feet. The capital improvements made by
[Terry] and others substantially increased the value of Aster Place.” The judgment also stated, “[d]uring the
marriage [Terry] used his labor and skills to make capital improvements to
Congress Avenue and, like Aster Place, [Terry] seeks reimbursement.”

Nevertheless, the trial
court did not award the community any reimbursement for two reasons. First, the judgment stated that Terry had not
provided any legal authority supporting his reimbursement claim based on a theory
of “sweat equity.” It does not appear
the trial court was aware of Dekker, >supra, 17 Cal.App.4th 842; our record
does not show the parties ever cited that case to the trial court. We are persuaded by the analysis and holding
of Dekker, and the analysis of
Hogoboom and King, California Practice Guide:
Family Law, supra,
paragraphs 8:337 to 8:338, page 8‑84.11. We conclude that the community should have
been reimbursed for Terry’s “more than minimal” efforts which resulted in an
increase in the value of Wendy’s separate property. (Dekker,
supra, at p. 852.)

Wendy argues that >Dekker, supra, 17 Cal.App.4th 842, is distinguishable from this case,
because in Dekker, the husband spent
“100 percent of his effort to building” the corporation (id. at p. 852), while in this case, Terry only spent some of
his time, skill, and labor on improving Wendy’s separate property. Wendy also argues Dekker only supports the proposition that reimbursement is
available for one spouse’s improvement of the other spouse’s business
enterprise, not real property interest.
Although, in Dekker, the
husband spent all of his time developing a business that was initially
capitalized with the wife’s separate property, the appellate court explained
reimbursement is not only available when the working spouse devotes 100 percent
of his or her effort to the business enterprise, but also more broadly to
circumstances “where more than minimal community effort combines with a
separate capital investment to increase the value of the separate investment.” (Id.
at pp. 847, 852.)

Wendy contends the
holding of Dekker is bad policy as
“it would turn mar[it]al dissolution trials into never‑ending disputes
about who did what work around the home and the value of those efforts.” But as discussed ante, Dekker applies when
“more than minimal community effort combines with a separate capital investment
to increase the value of the separate investment.” (Dekker,
supra, 17 Cal.App.4th at
p. 852.) Therefore, one spouse’s
efforts in washing the dishes, mowing the lawn, or changing a light bulb would
not support a community reimbursement claim under Dekker.

Wendy also argues that >Dekker, supra, 17 Cal.App.4th 842, erroneously interpreted >Pereira v. Pereira, supra, 156 Cal. 1, which only involved reimbursement to the
community for a spouse’s efforts during the marriage, which increased the value
of the spouse’s own separate property business.
Wendy further argues that in the case where a spouse substantially
improves the other spouse’s separate property, it should be essentially presumed
a donation to the other spouse. To
Wendy’s credit, in her respondent’s brief, Wendy acknowledges the well‑established
legal principles that “applying a gift presumption to marital property is
inconsistent with public policy, which presumes acquisitions during a marriage
are community” and that “California courts do not presume a gift when community
funds are contributed to purchase a separate asset or to reduce an encumbrance
on a separate asset.” (>In re Marriage of Allen (2002) 96
Cal.App.4th 497, 504.)

Furthermore, any
donation of community resources by Terry to improve Wendy’s separate property
would arguably constitute a transmutation of the value of the community
resources to Wendy’s separate property.
Since January 1985, transmutations must be in writing under Family Code
section 852 “to avoid the consequences of recognizing transmutation by
informal agreement, including extensive litigation in dissolution proceedings
and encouragement of perjury.” (>In re Marriage of Allen, >supra, 96 Cal.App.4th at
p. 504.) Wendy did not produce any
evidence of a written transmutation agreement regarding the reimbursement issue
presented.

The trial court did not
approve reimbursement to the community for Terry’s efforts to improve Wendy’s
separate property for a second reason, finding that Terry failed to provide
sufficient evidence supporting that claim.
The judgment stated, as to the Aster Place property: “At trial [Terry] did not produce documents
tracing the expenditure of funds to capital improvements made to Aster
Place. At trial [Terry] did not produce
records quantifying the labor hours he devoted to Aster Place and its
improvements. [Terry] did not keep a log
or diary of the hours spent improving Aster Place. [Terry] admitted that one of the exhibits he
admitted at trial documenting his hours was incomplete. [Terry] failed to assert a reimbursement
claim related to Aster Place within his Final Declaration of Disclosure.^{[href="#_ftn3" name="_ftnref3" title="">[3]]} [Terry] failed to produce sufficient evidence
quantifying the value of his labor devoted to Aster Place and his
improvements. [Terry] failed to prove
facts supporting his ‘sweat equity’ reimbursement claim. [Terry]’s trial testimony and trial estimates
regarding the quantum meruit value of his work in labor (‘sweat equity’) does
not constitute substantial and satisfying evidence supporting his reimbursement
claim.” As to the Congress Avenue
property, the judgment similarly stated that, “[g]iven the evidentiary gaps in
the record, [Terry]’s claim is denied based upon failure of proof.”

But, the trial court
made express findings that Terry’s efforts to improve Wendy’s separate property
were more than minimal. The trial
court’s express findings that Terry made “substantial capital improvements” to
the Aster Place property, which “substantially increased [its] value,” and also
made “capital improvements” to the Congress Avenue property are directly
inconsistent, as a matter of law, with the court’s refusal to award the
community anything for Terry’s
efforts that resulted in an increase in the value of Wendy’s separate
property. Terry did not produce
sufficient proof to satisfy the court that the community should be awarded a
particular amount as reimbursement for his time, skill, and labor. But, in light of the trial court’s express
findings that Terry’s time, skill and labor substantially improved and
increased the value of Wendy’s separate property, a reimbursement award to the
community, in some amount, was required.
The trial court thus erred by denying the community any such
reimbursement. On remand, the trial
court shall determine the amount of any increased value of Wendy’s separate
property, which was attributable to Terry’s efforts, and order reimbursement to
the community accordingly. On remand,
the trial court has discretion how to best proceed to resolve this issue.



DISPOSITION

We reverse the portion
of the judgment denying Terry’s request for reimbursement for the time, skill,
and labor he devoted to making capital improvements to the Aster Place property
and the Congress Avenue property during the parties’ marriage. We remand to the trial court to determine the
amount of the increase in value of those properties that was attributable to
Terry’s efforts, and order reimbursement to the





community
accordingly. We otherwise affirm the
judgment. In the interests of justice,
the parties shall bear their own costs on appeal.







FYBEL,
J.



WE CONCUR:







RYLAARSDAM, ACTING P. J.







ARONSON, J.