Advising Clients on Community Claims to Separate Property
By Inaara Ali and Kim Schnuelle
A young woman calls your law office right before the end of the day. She is quite distraught and tells you she is very worried that she will be homeless soon. Her husband of nineteen years filed for divorce two weeks ago, right after the last payment was made on their twenty-year mortgage. Immediately after filing, he moved in with his (unknown to the wife until after she was served with the divorce paperwork) girlfriend of four years, whom he has been apparently supporting through her master’s degree program. The house has more than quadrupled in value since it was purchased. He just told her over coffee this afternoon that because he bought and owned their house prior to marriage and she got the “benefit of living in it,” his attorney said that he would be awarded the home in its entirety at trial and she would receive nothing from this asset. He was adamant that this was true, even though: 1) her salary was used to pay the mortgage throughout the entire marriage; 2) she had thought that he had put her on the title of the home right after they were married; and 3) she put in years of labor to develop the beautiful and award-winning rose gardens on the west side of the residence. His salary is three times higher than her salary. The house is their major asset and she is really frightened. What, if anything, can you say to help calm her fears?
As an initial matter, even if her name had been placed on the title, no presumption changing the characterization from separate to community would be present1. More broadly, however, her husband’s counsel is likely referencing the case of Miracle v. Miracle2. In Miracle, the Washington State Supreme Court held that it was improper to place a community equitable lien on what was otherwise a separate property asset because, under the facts of that specific case, “the community had been adequately compensated for its expenditures by its beneficial use of the premises.3” In other words, although the dissolution court may impose an equitable lien when circumstances warrant it, a right of reimbursement would not arise if the spouse contributing community assets received a reciprocal benefit flowing from use of the property4. Miracle depended on the “reasonable rental value of (the) residence exceed(ing) payments that the community had made on it5.” However, the ultimate allocation of debts and assets in a dissolution case considers a far wider range of factors than simply one legal ruling and her situation is thus far more nuanced than is claimed by her husband.
It is a well-known fact that in apportioning property during a divorce, all property, both community and separate, is before the court for a just and equitable distribution6. In any divorce case, the court is required to “do equity,” thereunder7. Thus, even if the house were deemed to be entirely the husband’s separate property, separate property isn’t given special treatment in weighing or relevant factors and all or part of the house and its value could still be awarded to the wife8.
In addition, it is a longstanding truism that trial courts have inherent authority to impose equitable liens in favor of a divorced spouse to secure a property settlement9. Equitable liens in dissolution cases are often used to equalize property divisions when one spouse receives title to property, and the other spouse receives a compensating monetary award10. Despite the “benefit” language listed in Miracle therefore, the decision in Miracle is “asset related.” There are many specific circumstances where a community equitable lien/right of reimbursement will be placed against what is otherwise the other spouses separate property11. For example, if community funds are used to pay the mortgage on or to improve an otherwise separate property residence, this may give right to a right of reimbursement to the marital community in the event of a subsequent Chapter 7 bankruptcy proceeding12.
A right of reimbursement may also apply if the community expended labor on separate property. A breach of marital fiduciary duty may occur if community property or labor is used to improve separate property13. In the fact pattern at hand, the wife’s contribution to the home, such as her building of the rose garden, could result in a right to reimbursement because her efforts would constitute community labor. By dedicating years of labor and time, the wife thus may have created an equitable community lien against the husband’s separate property. Additionally, when an increase in separate property value is attributable to community labor or funds, the community may therefore be equitably entitled to reimbursement14. The rose garden can be seen to increase the home’s value, upon the provision of direct and positive evidence that the increase in value is due to community labor or funds, the court can grant a right of reimbursement to the community15.
Under RCW 26.16.030, either spouse may manage and control community property within general guidelines, one being that decisions must be in the community interest16. Indeed, spouses have a “special form of partnership”, not only “owing each other the highest fiduciary duties” but also a requirement that assets be managed for the benefit of the community and the common good17. The husband’s diversion of marital funds to support his girlfriend, while the wife used her salary to maintain the home’s mortgage, is on its face not “in the community interest” or for “the common good” This breach of duty reinforces the wife’s arguments for reimbursement. Furthermore, when a spouse makes an “unusually significant contribution” to an asset, such as the wife paying the mortgage for nineteen years, it may be “just and equitable” to award that spouse a specific reimbursement of value18. Since the husband prioritized a non-marital relationship over the economic health of the community, the court may equitably award the wife a portion of the home’s value to offset the husband’s bad faith financial conduct.
In conclusion, while the husband seemingly depends on the narrow and specific fact based interpretation of Miracle v. Miracle, the court is required to consider a far wider range of factors to reach a just and equitable result. Ultimately, all property, community and separate, is before the court for a just and equitable division. The court could therefore award some of the husband’s separate property to the wife to meet this standard. The parties’ disparate incomes may warrant a maintenance award in favor of the wife but also may warrant a disparate property award in her favor as well in order to effectuate the “just and equitable19” standard. Further by applying community labor principles and significant contribution standards, the wife may establish a clear right to a community equitable lien against what initially seems to be a separate property asset. Finally, the court can also address the husband’s breach of fiduciary duty regarding the diversion of marital funds to a non-martial partner. The wife can thus be comforted by discussion of the above-summarized numerous avenues that are available to her to achieve a “just and equitable” award of assets in her pending divorce case.
Inaara Ali is in her final semester at Seattle University School of Law and is currently a legal intern with McKinley Irvin. She is committed to developing her advocacy skills and contributing to the firm’s excellence in family law.
Kim Schnuelle is a senior attorney in the Seattle office of McKinley Irvin, PLLC. She has over thirty years of family law experience and her practice focuses on divorce, international family law issues, child support litigation, and complex parenting plan matters.
1 See In re Estate of Borghi, 167 Wn.2d 480, 490 (2009).
2 101 Wn.2d 137 (1984) (en banc), see also Marriage of Pearson Maines, 70 Wn.App. 860, 870 (1993).
3 Id. at 139. Note that the court later declined to expand the holding in Miracle when a wife argued that use of her separate property merited a general reimbursement from community assets. Marriage of Marshall, 86 Wn.App. 878 (1997). Equitable credit may nonetheless be given when separate property is clearly applied to a specific community obligation. See Farrow v. Ostrom, 16 Wn.2d 547, 555-56 (1943).
4 Id. The demarcation of the increase in value due to inflation would have the same characterization as the allocation of the underlying funds used, however. See Marriage of Pearson-Maines, 70 Wn.App. at 869.
5 Id.
6 RCW 26.09.080, Marriage of Larson, 178 Wn.App. 133, 137 (2013). Had the parties lived together prior to marriage and were in a committed intimate relationship when the home was purchased, this home could more likely be considered “community like” property, depending on the source of funds used for the downpayment. See generally Pennington v. Pennington, 142 Wn.2d 592 (2000).
7 Miracle v. Miracle, 101 Wn.2d 137, 139 (1984) (quoting Baker v. Baker, 80 Wn.2d 736 (1972) and RCW 26.09.080.), Marriage of Marshall 86 Wn.App. 878 (1997).
8 See Marriage of Konzen, 103 Wn.2d 470 (1985) (cert. denied 473 U.S. 906 (1985)), Marriage of Larson, 178 Wn.App. 133, 138 (2013).
9 Northern Commercial Co. v. E.J. Herman Co, Inc., 22. Wn.App. 963, 965 (1979) (involving securing payments to be made in future installments).
10 See generally Ticor Title Insurance Company of California, Inc. v. Nissel, 73 Wn.App. 818 (1994).
11 See generally Marriage of Bepple, 37 Wn.App. 881, 884 (1984) (“It is well established that the community is entitled to an equitable lien for its contributions to separate property.”) (citing Baker v Baker, 80 Wn.2d 736, 745 (1972).
12 In re Olsen, 656 B.R. 904, 920 (2023) (W.D. Washington). While it is accurate that Olsen is a federal bankruptcy decision, federal courts are generally required to apply state substantive law when characterizing property rights interests. See Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (involving determination of property rights and security interest in property), see also Britt v. Damson, 334 F.2d 896 (1964) (9th Cir.) (Washington State dissolution law applied to bankruptcy determinations). Olson itself also states as follows: “The determination of whether Mrs. Olson or the marital community held an interest cannot be addressed in the Bankruptcy Code. Instead, resolution of the foregoing issue requires reference to Washington State law to define what, if any property was transferred by either Quit Claim Deed.” In re Olson, 656 B.R. at 915.
13 In re Olsen 656 B.R. at 921 (citing W.T. Rawleigh Co. v. McLeod, 151 Wn. 221, 224 (1929)).
14 Elam v. Elam, 97 Wn.2d 81, 816 (1982), Connell v. Francisco, 127 Wn.2d 339, 351 (1995) (meretricious relationship case).
15 In re Marriage of Lindemann, 92 Wn. App. 64, 70 (1998).
16 See also Schweitzer v. Schweitzer, 81 Wn.App. 589, 597 (1996) (“A disposition of community funds is within the scope of authority of the acting spouse so long as he or she is acting “in the community interest.”), Gleason v. Metropolitan Mortgage Co., 15 Wn.App. 481, 491 (1976) (regarding a duty to defend actions against marital community).
17 Peters v. Skalman, 27 Wn.App. 247, 251 (1980).
18 See generally White v. White, 105 Wn.App. 545, 20 P.3d 481 (2001). (wife made an unusually significant contribution to the value of community assets by using her inheritance to pay the debts against the assets and, as such, was entitled to some recompense as an offset to this separate property contribution).
19 RCW 26.09.080, Marriage of Larson, 178 Wn.App. 133, 137 (2013).
