California Court of Appeals, Fourth District, First Division
In re the Marriage of ROSALINDA and GEORGE DELUCA. ROSALINDA DELUCA, Appellant,
v.
GEORGE DELUCA, Appellant.
APPEALS from a judgment of the Superior Court of San Diego
County No. D533280, Lisa C. Schall, Judge. Affirmed in part,
reversed in part, and remanded with directions.
Higgs,
Fletcher & Mack, John Morris and Rachel E. Moffitt for
Appellant Rosalinda Deluca.
Stephen W. Hogan for Appellant George Deluca.
DATO,
J.
In this
marital dissolution action between Rosalinda Deluca and
George Deluca, both parties appeal from a judgment
determining the division of property and other matters,
including spousal support.[1] During the marriage, George's
sister transferred to him title to an apartment complex
referred to in this case as the Florida Street property.
Rosalinda contends the trial court erred in ruling the
Florida Street property was George's separate property
rather than community property. George has custody of the
parties' two children and contends the court erred by
awarding Rosalinda spousal support in an amount greater than
his total net income available to support the children.
Specifically, he asserts the court erred by including the
amount of monthly loan principal payments he is required to
make on his income-producing properties as income available
for spousal support.
We
reverse the portion of the judgment awarding the Florida
Street property to George as his separate property and remand
with directions to characterize that property as community
property and determine the amount of reimbursement to which
George is entitled for his separate property contributions to
the acquisition of the property under Family Code section
2640.[2] We also reverse the spousal support
award and direct the trial court to reconsider spousal
support after determining the extent to which George's
loan principal payments reasonably and legitimately reduce
his income for purposes of support. We otherwise affirm the
judgment.
FACTUAL
AND PROCEDURAL BACKGROUND
A.
Background Facts
George
and Rosalinda were married on September 7, 1996, and
separated 15 years and two months later, on November 21,
2011. They had two children during the marriage-one born in
1998, and the other in 2003. At the time judgment was
entered, George had sole physical custody of the
children.[3]
Before
and during the marriage, George owned and operated an
insurance agency. He also owned and managed several
income-producing rental properties that the court found to be
his separate property. Rosalinda has a bachelor's degree
in political science and a paralegal certificate. She worked
as a legal secretary for over 26 years, including throughout
the marriage.
B.
The Deluca Properties Trust Litigation
Before
George's father died in 1990, he acquired multiple
parcels of real property that he held in various trusts,
including the Deluca Properties Trust that contained the
Florida Street property. George, his brother Sylvester, and
his sister Rosalie were the beneficiaries of the Deluca
Properties Trust. After their father's death, disputes
over his trusts led to four and one-half years of litigation
between George and his siblings.
On
October 25, 1996, just after George married Rosalinda, the
three siblings entered into a written agreement (the
settlement agreement) to resolve their litigation over the
family properties. The settlement agreement noted the
existence of "claims, demands and differences"
between the parties relating to the ownership and management
of the subject properties and the administration of the
Deluca Properties Trust, and stated the parties had
"settled all of these claims, demands, differences and
disputes...."
Under
the settlement agreement, George received title to three
properties: (1) a commercial property in Santee (referred to
as the Santee Property); (2) a commercial property in
Encinitas (referred to as the Encinitas Property); and (3) a
commercial property on Orange Avenue in San Diego (referred
to as the Orange Property). Rosalie received title to the
Florida Street property and a promissory note from George in
the amount of $75, 000. The note was to be secured by a first
priority deed of trust encumbering the Orange Property.
Sylvester agreed to forgive an outstanding debt Rosalie owed
him in the amount of $32, 000. Sylvester received title to a
property on West Palm Street in San Diego and a promissory
note from George in the amount of $250, 000. The note was to
be secured by a third priority deed of trust encumbering both
the Santee Property and the Encinitas Property.
The
settlement agreement provided that "[i]n exchange for
receiving the Santee, Encinitas and Orange Properties, GEORGE
relinquishes his right to receive or claim an interest in any
of the assets of the [Deluca Properties] Trust, and expressly
agrees that he is no longer a beneficiary of the Trust[,
]" and that "all assets of the Trust belong solely
to ROSALIE and SYLVESTER...." The settlement agreement
also provided: "This agreement may be amended only by a
written agreement executed by all the Parties."
C.
George's Later Acquisition of the Florida Street
Property
At
trial, George testified that Rosalie never wanted the Florida
Street property. So in September 1997, roughly one year after
the original settlement agreement, George and Rosalie signed
another agreement under which Rosalie transferred title to
the Florida Street property to George. This second agreement,
labeled "AMENDMENT TO SETTLEMENT AGREEMENT AND MUTUAL
RELEASE," states that it amends "that Agreement of
Settlement and Mutual Release... executed October 25, 1996,
by and between Rosalie... George... and Silvester
[sic].... This amendment does not in any way
[affect] the terms of the original settlement with respect to
George... and Silvester... or as between Rosalie... and
Silvester..., and makes no other changes or modification,
other than those set forth herein."
The
"amendment" to the settlement agreement provided
that Rosalie would transfer the Florida Street property to
George by grant deed, and George would execute a promissory
note to Rosalie in the amount of $164, 700, secured by the
Florida Street property. George would "have the option
to assume the first deed of trust on [the] property, in the
approximate amount of $235, 300 or continue making the
monthly payments on [the] first deed of trust." George
would also pay $20, 000 in cash to Rosalie at the close of
escrow. Thus, what George referred to at trial as the
"transfer price" of the Florida Street property was
$420, 000 ($164, 700 $235, 300 $20, 000), which was the
value of the property when it was appraised in 1995, in
connection with the original settlement agreement.
The
amendment to the settlement agreement stated: "It is
expressly agreed between the Parties that this exchange and
transfer of ownership to the Florida Street property is an
extension of and modification of the Parties' original
settlement agreement..., and the Parties' express intent
herein is to redistribute trust assets." It also stated:
"Except as expressly stated herein, all other terms and
provisions of the original settlement agreement remain in
full force and effect, without modification or change."
George and Rosalie signed the amendment; Sylvester did not
sign it.
At
trial, George testified that he had many conversations with
Rosalinda about the Deluca properties and that as "my
fiancée, my wife, my confidant, [Rosalinda] was aware
of everything that was happening in the litigation [with his
siblings] so I'm sure she had a chance to see [the
settlement agreement] numerous times if she wanted to or she
glanced at it. It was available for her." He also
testified that he provided Rosalinda a copy of the trust that
was the subject of the litigation.
George
testified that he told Rosalinda his sister was transferring
the Florida Street property to him and the property was his
inheritance. He explained that the Florida Street property
had been part of his family trust, his parents had built the
apartment building on the property, and it was to remain his
separate property. He gave Rosalinda a copy of the amendment
to the settlement agreement before the close of escrow on
Rosalie's transfer of the Florida Street property to him,
and he discussed the terms of the amendment with her. When
asked if Rosalinda "[made] any reply" to him about
the terms of the amendment, George testified, "She
thought it was good."
At
George's request in January 1998, Rosalinda signed a
quitclaim deed transferring any interest she had in the
Florida Street property to George as his sole and separate
property. When George refinanced the property in 2002,
Rosalinda signed a "SPOUSAL ACKNOWLEDGEMENT"
document stating that she claimed no ownership rights in the
Florida Street property.
Rosalinda
testified at trial that when she and George were dating, he
told her that he was involved in litigation with his brother
regarding the "trust for his inheritance," but he
did not tell her any details about his claims. He never
provided her with a copy of any of the family trusts, and he
never discussed the details of the terms of the settlement
agreement between him and his siblings or the amendment to
the settlement agreement before or during the marriage. The
first time she saw the settlement agreement and the amendment
to the settlement agreement was during the divorce
proceedings, and George did not tell her anything about terms
of the amendment to the settlement agreement when he asked
her to sign the quitclaim deed to the Florida Street
property. He told her the Florida Street property was part of
his inheritance and his sister was going to transfer it to
him as part of the inheritance because she was unable to
manage the apartments. He explained that his lender needed
the quitclaim deed "to get everything through." She
did not seek legal advice before signing the quitclaim deed
because she trusted her husband and "just signed
it."
Rosalinda's
counsel argued at trial that the Florida Street property
should be divided as community property because George
purchased it from his sister during the marriage with
community funds. Counsel further argued that George induced
Rosalinda to sign the quitclaim deed to the Florida Street
property by undue influence in breach of the fiduciary duty
he owed her because she did not sign the quitclaim deed with
full knowledge of the material facts, her signing it unfairly
advantaged George, she waived a valuable right by signing it,
and she received no consideration for signing it.
George's
counsel argued that Rosalinda knew she had no interest in the
Florida Street property, knew it was part of George's
inheritance, and knew the effect of the quitclaim deed-i.e.,
she knew that if she had any interest in the property, she
was transmuting it. He argued that the presumption of undue
influence had been rebutted by evidence that Rosalinda
"knew at all times that these properties were being
handed down through the family. Even if he had to make a
payment to his siblings, the payment was supported by the
loans on the commercial properties and the loans on the
commercial properties were supported by the commercial
properties themselves...."
D.
Statement of Decision and Judgment
1.
Character of the Florida Street property
In its
"Final Statement of Decision and Judgment," the
trial court ruled that the Santee Property, the Encinitas
Property, and the Orange Property were George's separate
properties under section 770 "in that they were received
through inheritance and devise."[4] The court relied on
the fact that George acquired the properties through the
settlement agreement between him and his siblings, which was
reached before the marriage but executed two months after the
marriage. It found that all of the properties at issue in the
litigation between George and his siblings were "a
direct result of an inheritance received and an agreement
devising the real properties at issue."
Regarding
the Florida Street property, the court determined that George
"met his burden of proof to establish that the real
property is his separate property... in that it was received
through inheritance and devise." His acquisition of the
Florida Street property was "memorialized" by the
amendment to the settlement agreement, which "provided
for the same value of the property that existed at the time
of the original Settlement Agreement and Mutual
Release...." Rosalinda, in turn, "freely and
voluntarily executed a Quit Claim Deed at the time of the
transfer of the property to [George]." She testified
that she read the quitclaim deed before she signed it and
that George did not threaten her to make her sign it. When
George refinanced the property in 2002, Rosalinda
"executed a spousal acknowledgement indicating that she
claimed no ownership interest in the property...."
Noting that the Florida Street property was solely in
George's name during the marriage, the court found that
"[t]he community did not acquire an interest in the
property by way of pay down of principal (as established
through the tracing report of [George's expert witness,
accountant Anna Addleman])."
The
court ruled that George met his burden of proof by
substantial evidence to overcome any presumption of undue
influence and unfair advantage in his relationship with
Rosalinda, and that Rosalinda did not present sufficient
evidence to support a finding of constructive fraud. Based on
findings that Rosalinda had access to legal advice because
she worked in a law firm, and that George discussed the
amendment to the settlement agreement with her and informed
her that his sister would transfer the Florida Street
property to him under the agreement, the court concluded
Rosalinda executed the quitclaim deed and spousal
acknowledgment regarding the Florida Street property
"freely and voluntarily, and with full knowledge of all
the facts, and with understanding of the effect of the
transfers."
The
court found that Addleman's tracing report accurately
traced the payments on the Florida Street property,
reflecting that $974 of community funds were used to pay down
the principal on the property, and that "the indirect
tracing (Recapitulation/Family Expense) by Ms. Addleman [was]
accurate and properly provide[d] for tracing of separate
property. (See findings in (b) above)."[5] Observing
that the loans against the property were solely in
George's name, the court found "the lender relied
upon the rent/profitability of the property itself to
underwrite the loan...."
2.
Income available for support
The
court noted that George had self-employment income from his
insurance agency and rental income from his real property. It
found George's monthly self-employment income was $7,
281, based on the "competing testimony" of
George's expert witness Addleman, and Rosalinda's
expert witness, accountant Karen Kaseno.
According
to Addleman's report, George's monthly average income
was $25, 332 before principal payments on the loans against
his commercial and residential properties. The court noted
that Kaseno had testified it would not be appropriate to
reduce George's income available for support by the
amount of his principal payments on his separate property,
[6]
and that Addleman's position was that if the court
"set support without consideration for the principal
payments [George] would ultimately be unable to pay for the
real properties he needs to generate income and he would lose
the properties themselves." It concluded Addleman's
reasoning was "flawed[, ]" stating: "Payments
made to solely benefit the separate property of [George]
cannot operate to reduce his income available for support. If
that were the case then any party could divert income to the
benefit of their separate property at the exclusion of being
considered income available for support." The court
added that "[n]either party provided the Court with any
case authority addressing this issue." Based on
Addleman's report, it found George's combined
self-employment income and separate property rental income
available for support was $25, 332. The court imputed annual
income of $60, 000 to Rosalinda ($5, 000 per month) based on
her earning capacity.
The
court found that during the marriage the parties enjoyed an
upper middle class lifestyle, which "was in large part
supplemented by the separate property income of
[George]." Rosalinda "had been living rent free for
approximately the last three years[, ]" and George had
been "living in a 2 million dollar plus residence in
Point Loma." During the marriage, the parties traveled
to Europe each year, which "in large part was supported
by the separate property residence that [George] inherited
from his mother." The court noted that Rosalinda had
been able to put money into a profit-sharing plan and a
401(k) account when she was employed, the parties drove older
vehicles, and the minor children were enrolled in private
schools.
The
court ordered George to pay spousal support of $7, 500 per
month. The court explained that although Rosalinda had made
minimal efforts to become self-supporting and had the ability
to earn $60, 000 per year, George's total income was $25,
332 per month and he lived with the children in a home valued
in excess of $2 million. Rosalinda, on the other hand,
"live[d] with her sister's ...