The Implied Termination of Community Property Agreements Upon Permanent Separation

• Publication year: 1990

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 14, No. 1FALL 1990

The Implied Termination of Community Property Agreements Upon Permanent Separation

William Oltman(fn*)

The three-pronged community property agreement(fn1) is a unique(fn2) combination of inter-vivos contract and statutory will substitute.(fn3) It permits spouses to agree on the status of property currently held, the status of property acquired in the future, and the disposition of community property upon the death of either spouse. It is only the final element, the disposition of property at death, which is authorized and controlled by statute.(fn4) The inter-vivos elements are controlled by general contract principles.(fn5) It is common practice to combine the statutorily authorized will substitute provision with the inter-vivos contract provisions into one formal agreement.(fn6)

There are many combinations of inter-vivos and at-death elements that spouses may choose. On the other hand, the spouses may simply choose to have an at-death distribution without agreeing on the status of property during their lifetimes. The usual agreement contains a combination that declares the status of currently held property (usually labeling it community), agrees upon the status of future acquisitions (usually that they will attain community status upon receipt), and describes the distribution of community property upon the death of either spouse (usually that the surviving spouse receives all community property).(fn7) Such an agreement will cause all property owned or acquired by the spouses to be converted to community property immediately upon acquisition and distributed to the survivor upon death.

Since the statutory community property agreement is only available under the statute to husband and wife, the statutory element is by definition terminated upon dissolution. Therefore, community property agreements seldom contain a term dealing with dissolution. However, neither the statutes nor the case law provides any guidance for spouses having a community property agreement who, while not divorced, are permanently separated and living "separate and apart"(fn8) in a defunct marriage. The law should provide guidance in this situation; community property agreements should terminate upon the permanent separation of spouses.(fn9)

This Article will assess the effect of living separate and apart in a defunct marriage on the typical community property agreement, including both inter-vivos and at-death elements. First, as background, this Article will explain and analyze the Washington law status of the concept of living separate and apart. Second, this Article will then review the facts and the holding of In re Estate of Lyman,(fn10) an appeals court case illustrating the typical fact situation and setting forth the approach of the Washington Supreme Court in this area. It remains the best and most instructive example to date of this issue. Third, the Article will discuss the general contract law concept of implying an omitted contract term when it appears that policy and efficiency dictate that such a term be implied. Fourth, the Article will suggest implying a term of termination in community property agreements upon permanent separation, analogizing to the law of acquisitions while living separate and apart. Finally, the Article explores the policy benefits of implying such a term in community property agreements.

The treatment the law gives to property acquisitions by spouses while living separate and apart provides the basic policy support for the implication of an omitted term in community property agreements. Since that policy likely reflects what most permanently separated spouses would want, it is also likely to reflect the intent of most spouses with respect to the validity of community property agreements during permanent separation. Therefore, this Article concludes that a term should be implied in each community property agreement terminating such agreements upon a permanent separation.

I. Historical Basis for the Concept of Living Separate and Apart

The concept of living separate and apart has long been part of the Washington statutory scheme, especially as it relates to wives. Prior to 1972, Wash. Rev. Code § 26.16.140, which was originally enacted in 1881, provided that the earnings and accumulations of a wife while living separate from her husband were her separate property.(fn11) That statute recognized that, while a technical "marital" status might still remain, the "community relationship" upon which the community property principles were based no longer existed.(fn12) In 1948, the Washington Supreme Court extended this same concept to husbands in Togliatti v. Robertson.(fn13) The legislature consolidated the treatment of husbands and wives in its 1972 amendment to Wash. Rev. Code § 26.16.140. Since then, by statute, the earnings and accumulations of either husband or wife are separate property while living separate and apart.(fn14)

While the 1972 amendments clarified application of the statute, the question remains whether the spouses are in fact living separate and apart. Over the years, courts have given the term "separate and apart" some meaning. Primarily, these courts have attempted to define circumstances that will indicate that the spouses have abandoned the community with no fixed intent to reconcile.(fn15)

In most cases that have found spouses to be living separate and apart, the couple involved has either signed a separation agreement,(fn16) filed for dissolution,(fn17) or obtained some form of interlocutory decree.(fn18) While such technical indications of intent are not necessary, it seems such indications may be the easiest way of overcoming the presumption of an ongoing community.(fn19) Finally, both spouses must accept and acknowledge the termination of the community. One spouse cannot unilaterally destroy the community short of a dissolution. However, once both spouses have accepted and acknowledged the termination of the community, only the technical marital status remains.

While Washington courts have, to a certain extent, clarified the status of living "separate and apart," the courts have not analyzed the effect of this status on community property agreements. Spouses having such an agreement but living separate and apart are left in a state of legal limbo. The community is severed, but the community property agreement is whole because the spouses are not yet divorced. Because the agreement retains life, even if the marriage does not, the spouses are left unsure as to the true status of their property. The court in In re Estate of Lyman failed to apply the law of living separate and apart to community property agreements, providing no guidance or solutions to separated spouses with such agreements.

II. In re Estate of Lyman

A. Factual Background

The 1972 court of appeals case, In re Estate of Lyman,(fn20) presents the situation described above. Ralph and Jannie Lyman were married in 1959. In 1964 they executed an "Agreement as to Status of Community Property" pursuant to Wash. Rev. Code § 26.16.120.(fn21) At the same time they executed reciprocal wills which gave their respective estates to the surviving spouse.(fn22)

Between 1964 and 1970, the parties separated twice and were reunited. However, in 1970 the wife filed for divorce and obtained a temporary restraining order followed by a temporary injunction enjoining the husband from "selling, assigning or encumbering" any of the community property. There is no indication in the opinion whether the Lymans were living separate and apart in a defunct marriage at this time or even whether they were separated at all. One week after the wife filed for divorce, the husband executed a new will giving one-half of his community property to his stepsons (his wife's children by a former marriage). This will, of course, was in direct contradiction to the community property agreement which apparently passed all community property to the surviving wife. Three weeks after he executed the new will, the husband died. The wife recorded the community property agreement, and the stepson filed the will for probate. The trial court admitted the will to probate, but found that the community property agreement was valid and that it prevailed over the will. Subsequently, the court dismissed the proceedings in probate, and the stepson appealed.

On appeal the stepson argued that the parties had mutually abandoned the community property agreement when the wife filed for divorce and when the husband executed the contradictory will. The court noted that the community property agreement was a "contract sui generis."(fn23) As with any contract, it could be abandoned by mutually manifested intention, but the inconsistent actions of one party would not be sufficient to effect an abandonment.(fn24) However, it would be sufficient if the inconsistent conduct by one party was acquiesced in by the other party.(fn25) By definition, "uncommunicated subjective mutual intention" is not enough.(fn26) In other words, it was not sufficient that both parties independently wanted an abandonment of the agreement. Because the contract was bilateral, the parties could not abandon it without a clear manifestation of the intent to abandon by one party and then an acquiescence or acceptance by the other party.(fn27) The intention must be a "manifested...