§ 3.01 GENERAL CONSIDERATIONS: STATUTORY FRAMEWORK

• Jurisdiction: Washington

§ 3.01 GENERAL CONSIDERATIONS: STATUTORY FRAMEWORK

This chapter sets forth, in a general way, the major presumptions and rules of law used to characterize the ownership of property as community or separate. The character of ownership of property acquired by either or both spouses is controlled by statute. The basic statute, RCW 26.16.030, specifies that "[p]roperty not acquired or owned, as prescribed in RCW 26.16.010 and 26.16.020, acquired after marriage or after registration of a state registered domestic partnership by either domestic partner or either husband or wife or both, is community property."

Although neither of the two sections that the statute references (RCW 26.16.010, addressing spouses, and RCW 26.16.020, addressing registered domestic partners, included in the term "spouse" in the discussion that follows) mentions "separate" property, that label appears in the codifier's title to the sections and has long been accepted. Each section provides that "property and pecuniary rights" owned by the spouse at the time of marriage or thereafter acquired by "gift, bequest, devise, descent, or inheritance, with the rents, issues and profits thereof, shall not be subject to the debts or contracts of [the other spouse]." The RCW sections also provide that the owning spouse "may manage, lease, sell, convey, encumber or devise by will such property" without joinder of the other spouse as if unmarried. In addition to these basic "separate property" sections, RCW 26.16.140 provides that "[w]hen spouses or domestic partners are living separate and apart, their respective earnings and accumulations shall be the separate property of each." For an elaboration on what it means to live "separate and apart," see § 3.03[3], below.

As the Washington Court of Appeals has explained:

The classification of property as separate or community presents a mixed question of law and fact. The time of acquisition, the method of acquisition, and the intent of the donor, for example, are questions for the trier of fact. Whether the facts, as found, support the classification of property as separate or community is for the court to determine as a matter of law.

In re Marriage of Martin, 32 Wn. App. 92, 94, 645 P.2d 1148 (1982). Determinations of fact are reviewed on a standard of "substantial evidence," whereas characterization, as a question of law, is reviewed de novo. In re Marriage of Zier, 136 Wn. App. 40, 45, 147 P.3d 624 (2006), review denied, 162 Wn.2d 1008 (2007).

It may be that the separate property label should be used only to refer to the non-community property ownership by a spouse and an unmarried person's ownership should be labeled "individual" property, whether or not owned with another person. "Separate property" is neither a statutory label nor a term of art and, preferably, should not be applied automatically. Such an analysis would have preserved the position taken by the Court of Appeals in In re Estate of Mell, 40 Wn. App. 359, 698 P.2d 1080 (1985), rev'd, 105 Wn.2d 518, 716 P.2d 836 (1986). In Mell, a surviving spouse's will devised separate property to a son and the spouse's interest in community property to grandchildren and step-grandchildren. The appeals court held the will to operate as to the property as classified during marriage rather than to include all property as separate (any community character ending at the death of the spouse). In the hands of the survivor, there was individual property rather than separate or community property. The Supreme Court reversed, restoring the trial court's holding entirely in favor of the son. If the drafter wants to avoid having all of a surviving spouse's property lumped into a single disposition, the indiscriminate use of the label "separate property" must be avoided. The trial court rejected testimony that might have gone to establish satisfaction of the legacy for the son, but the argument for a different result on that basis apparently was not made.

The Court of Appeals found a new occasion to recognize a different kind of "individual property" in In re Marriage of Kraft, 61 Wn. App. 45, 49 & n.2, 808 P.2d 1176 (1991), aff'd, 119 Wn.2d 438, 832 P.2d 871 (1992). In Kraft, the court was struggling with the proper treatment of military disability benefits to be received after dissolution. Focusing on the fact that such postdissolution disability benefits, as a replacement for postdissolution earnings, are not divisible at divorce, as is other truly "separate" property, the court expressed the view that such benefits should be referred to as "individual property." Interestingly, however, the Court of Appeals suggested that it would use the term "individual property" to refer to all such postmarital disability benefits, not just military benefits subject to federal preemption. On appeal to the Supreme Court, the appellant complained about this appellate creation of a new form of property. But the Supreme Court did not view the Court of Appeals as having recognized a new form of property. In re Marriage of Kraft, 119 Wn.2d 438, 450-51, 832 P.2d 871 (1992). Instead, it understood the Court of Appeals to have been seeking only to dispel the idea that military disability benefits were divisible at divorce as were community and separate property. The Supreme Court ignored the suggestion in the Court of Appeals opinion that the concept should be extended beyond the ambit of federal disability benefits.

The language of the statutes suggests what has been called a "wastebasket" approach to classification of property—that is, everything that does not clearly come within the "separate property" section falls within the catch-all community property section. The Washington Supreme Court has, however, also applied the Spanish law approach that community property is the result of an onerous acquisition—the result of spousal toil or talent—and separate property is the result of a donative acquisition. Brown v. Brown, 100 Wn.2d 729, 675 P.2d 1207 (1984) (cause of action for personal injury of a spouse is separate property) (see discussion in § 3.02[15], below). The tests are not mandatory; thus, a gift to both husband and wife may create community property even though the acquisition is donative. See § 3.03[2], below.

The time and manner of acquisition are of great importance in ascertaining the character of an asset. The character of property becomes fixed as of the time of acquisition. The character, once fixed, continues until changed by agreement of the parties or by operation of law. In re Madsen's Estate, 48 Wn.2d 675, 296 P.2d 518 (1956). Property shown to have been separate when acquired is presumed to remain separate as long as it can be clearly traced and identified. Seaton v. Smith, 186 Wash. 447, 58 P.2d 830 (1936). However, when an asset is acquired during marriage, establishing its separate character is complicated by the existence of the basic, but rebuttable, presumption that such an asset is community property.

The statutory definition of separate property includes the rents, issues and profits of such property. RCW 26.16.010. The Washington Supreme Court has rejected the contention that the words "rents, issues and profits" of separate property apply only to separate real property. Harris, 17 Wash. 489, 491, 50 P. 50 (1897). The following are applications of the statutory provision that the rents, issues, and profits of any separate property are also separate property:

• Increase of cattle that are separate property is also separate property. Harris, 17 Wash. 489.

• Gain realized from the sale of separate real property is separate property. In re Smith's Estate, 73 Wn.2d 629, 440 P.2d 179 (1968); U.S. Fid. & Guar. Co. v. Lee, 58 Wash. 16, 107 P. 870 (1910).

• When a ranch is three-elevenths the husband's separate property, that portion of the operating profit is separate property. In re Estate of Gulstine, 166 Wash. 325, 6 P.2d 628 (1932). Dividends from separate corporate stock are separate property.

Sievers v. Sievers, 11 Wn.2d 446, 119 P.2d 668 (1941).

The rule that rents, issues, and profits of separate property are also separate property is not universal among the community property jurisdictions in this country. In Idaho, Louisiana, and Texas, the fruits and profits of separate property are, in general, community property. IDAHO CODE ANN. § 32-906; LA. CIV. CODE ANN. art. 2339; TEXAS FAM. CODE ANN. § 3.002. This same rule is included in the Uniform Marital Property Act, a form of which has been adopted in Wisconsin. WIS. STAT. § 766.31. However, in the remainder of American community property states, the statutory rules characterizing the rents, issues, and profits of separate property are similar to those of Washington. ARIZ. REV. STAT. § 25-213; CAL. FAM. CODE § 770; NEV. REV. STAT. § 123.130; N.M. STAT. ANN. § 40-3. See generally Thomas R. Andrews, Income from Separate Property: Towards a Theoretical Foundation, 56 LAW & CONTEMP. PROBS. 171 (1993).

A mere change in the value of an asset does not affect its community or separate character. The natural enhancement in value of separate property was held to be separate property in Guye v. Guye, 63 Wash. 340, 115 P. 731 (1911). In Guye, it was contended that the natural enhancement of value of real estate during marriage was property acquired during marriage within the spirit and intent of the community property statute. The court reasoned that because a spouse is entitled to the rents, issues, and profits of separate property, a spouse must be entitled to the natural increase in value of separate property, "as such increase is as much the issue of such property as would be the rents derived therefrom." Id. at 348.

If value added to separate property by community labor or funds accompanies the natural enhancement (or inflationary increase) in value, the problem becomes more complex and is affected by the rules discussed in § 3.04 (Right of Reimbursement: The Equitable Lien), below...