Marriage Of Lafkas

237 Cal.App. 4th 921 (2015)

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Nature of the Case

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Facts

H began working as a police officer in 1966. In 1971, H formed Smile Enterprises to invest in real property with friends Eric Cleworth and Nicholas Roberts. Each partner contributed $3,333 in exchange for one-third of the profits and losses of the partnership. Other than occasional distributions to the partners, the profits were reinvested in the partnership. H married in 1972, had a daughter, and divorced in 1980. The statement of partnership recorded in August 1982 listed the names of each partner of Smile Enterprises as follows: “John Lafkas; an unmarried man, Eric Cleworth; a married man, and Nicholas P. and Sylvia V. Roberts; husband and wife.” On December 15, 1990, H married W H was 48 years old, and W was 36 years old at the time. W held a master's degree in educational psychology, obtained a degree in education during the marriage, and began teaching elementary school in 1992. H did not expend any money or effort on behalf of Smile Enterprises. In 1995, the partnership decided to exchange the Monrovia property through an Internal Revenue Code section 1031 tax-deferred exchange. Smile Enterprises's net worth at the time was between $500,000 and $600,000. H asked W to participate in the transaction. Smile Enterprises qualified for the loan based on its assets and the expected income from the properties. H believed that because he was married, the bank required the addition of W to the partnership and the loan application. W testified at trial that her credit was necessary for the partnership to qualify for the loan to purchase the Riverside properties. A two-page document was prepared and was signed and recorded with the State. The total amount borrowed to complete the transaction was $404,000. All partners signed the appropriate paperwork required for the loans and purchase. H did not invest any further funds or effort in the Riverside properties. Ten months later, on April 22, 1996, H and W separated. H filed a petition for legal separation, and W filed a response requesting dissolution of the marriage on May 31, 1996. H claimed that the partnership was his separate property and W claimed it was community property. H argued that none of the documents contained an express declaration transmuting his separate property interest in the partnership. W argued that the modification made her a partner as to an undivided one-third interest under partnership law, and community property law did not apply. During trial, Smile Enterprises sold the Pasadena property. One of the Riverside properties was sold in 2003 for $699,000, and the other in 2005 for $940,000. The partnership was dissolved. The court found the modification amounted to a new partnership agreement and the Riverside properties were property acquired during the marriage under section 760. The modification agreement converted H's one-third interest under the prior agreement to a shared one-third interest taken as “husband and wife,” which satisfied the requirement of an express declaration under section 852, subdivision (a). H appealed