Property division is one of the thorniest issues couples face when going through a divorce. In a community property state, like Washington, it can be confusing to determine exactly how courts will order the distribution of assets. A recent appeal of a trial court’s characterization and distribution of retirement and investment accounts offers a helpful guide in this area.
Briefly, Damien Schwartz and Susan Champagne were married for 13 years before filing for divorce. Both had been married before and came into the marriage with substantial assets. Damien had a house, IRA, and a small business. Susan had substantial investments and an inheritance.
Both parties intended to keep their assets and finances separate. They attempted to accomplish this by dividing household bills. They did not, however, retain complete records of their finances or segregate the money they earned during the marriage from their separate assets.
The trial court found that Damien’s business, most of the value of his retirement accounts, and his home were his separate property. It also found that only $48,928 of Susan’s investment account (valued at $184,198) was Susan’s separate property. Each party was entitled to keep their separate property. The court then divided the remaining community property equally.
The central questions for the appellate court were whether the trial court accurately characterized the parties’ IRAs and one of Susan’s investment accounts as separate vs. community property.
The court began its analysis with a helpful summary of the law:
- The basics: In a dissolution action, all property, both community and separate, is before the court for dissolution. An asset is separate property if acquired before marriage; acquired during marriage by gift or inheritance; acquired during marriage with the traceable proceeds of separate property; or, in the case of earnings or accumulations, acquired during permanent separation.” Property acquired during marriage is presumptively community property. A party may rebut this presumption by offering clear and convincing evidence that the property was acquired using separate funds.
- Community property presumption: The trial court will presume that an asset “possessed” by a married person is community property, even if the time of acquisition has not been established. This presumption lies “until the contrary is shown.” This is not a very strong presumption and can easily be rebutted. The longer the marriage, the more likely the court will assume assets are community.
- Separate property presumption: Once a party establishes that an asset is separate, the court may presume that the asset remains separate, absent sufficient evidence to change the property to a community asset.
- Comingling: If the parties comingle separate and community property, the trial court may presume that all funds are community. This requires “hopeless comingling” – that is, comingling so significant that the property cannot be distinguished and apportioned. In other words, the assets are not traceable. This presumption is conclusive.
The appellate court painstakingly analyzed the evidence supporting each party’s characterization of the assets at issue.
The court affirmed the trial court’s finding that 85.9% of Damien’s IRA was separate property and 14.1% was community property. This finding was based on the fact that Damien had acquired the IRA before marriage and made four documented post-marriage contributions.
The appellate court remanded the finding regarding two of Susan’s IRAs. It appeared that tracing the assets to Susan’s separate property was lengthy and complex, and that the trial court made an incorrect characterization simply because it had been buried under so many details on so many issues.
Finally, the appellate court remanded the finding that Susan’s investment account was community property. Damien offered no evidence that she acquired it during the marriage, thus the presumption that it was community property was weak. Susan overcame this presumption by testifying that it was possessed just four months into the marriage and presenting documentation that the deposits to the account could be traced to separate funds.
- The burden of tracing assets to separate property must be by “clear and convincing evidence.” This does not require irrefutable evidence (i.e. exhaustive records showing every deposit or withdrawal). This does not even require proof beyond a reasonable doubt. This does require some evidence, direct or circumstantial, that makes a proposition “highly probable.”
- When a party is trying to overcome the community property presumption, s/he will have to do more than provide a “self-serving declaration” that the asset was acquired using separate funds. The party’s testimony should be supported by documentary evidence, an admission by the other party, or the testimony of another witness. This does not require exhaustive records showing every deposit and withdrawal, but the party is going to need something.
- If the party offers convincing proof to rebut the community property presumption, it is up to the other party to contradict that evidence or introduce doubt.
 In re Marriage of Schwartz, 11 P.2d 8 (2016).