## Facts

- Before marriage, the husband acquired an 80-year leasehold from Stanford University and built a residence, financing construction with a loan; the property was worth about $65,000 at marriage and later increased to about $182,500.
- During marriage, community funds reduced the principal balance on the construction loan by about $9,200.
- The husband owned separate-property stock before marriage but continued trading during marriage while commingling funds across accounts and keeping inadequate records to trace purchases to separate sources.
- The wife filed an initial dissolution petition, moved out, and lived away for extended periods, but the spouses continued to see each other, travel together, maintain a sexual relationship, and later resumed living together; that petition was dismissed and a new dissolution proceeding was filed in 1978.
- The trial court entered interlocutory judgments addressing marital status, property characterization/division (including attorney’s fees), and division of pension/annuity interests.

## Issues

1. Whether the community interest in a premarital leasehold/residence was properly apportioned where community funds reduced loan principal and the property appreciated both before and during marriage.
2. Whether stock acquired during marriage was properly characterized as community property when separate and community funds were commingled and tracing records were inadequate.
3. Whether the spouses were “living separate and apart” under former Civil Code § 5118 during periods of physical separation, making the husband’s earnings separate property.
4. Whether the pension division order erred by failing to specify a valuation date for the community interest in retirement benefits.
5. Whether the attorney’s fee award to the wife was an abuse of discretion.

## Decision

- Reversed in part and remanded the real-property apportionment because the formula used failed to credit the husband’s separate estate with appreciation that occurred before marriage.
- Affirmed the stock characterization as community property because the husband did not rebut the community-property presumption through adequate tracing.
- Affirmed the finding that the parties were not “living separate and apart” under former Civil Code § 5118 through July 1978 because substantial evidence showed no complete and final break in the marital relationship.
- Affirmed the pension/annuity judgment, clarifying that valuation of the community interest is properly tied to the date of trial (or, where applicable, the date benefits are paid).
- Affirmed the award of attorney’s fees to the wife.

## Legal Principles

- When a spouse brings separate real property into marriage and community funds later reduce principal debt, the community is entitled to reimbursement of its principal reduction and a proportional share of post-marriage appreciation; the separate estate retains its premarital investment and premarital appreciation.
- Property acquired during marriage is presumed community property; when separate and community funds are commingled and cannot be traced with reasonable certainty, the presumption is not overcome.
- “Living separate and apart” under former Civil Code § 5118 requires a complete and final break in the marital relationship and an absence of present intent to resume marital relations; physical separation alone is insufficient.
- Community interests in pension and retirement benefits are treated as deferred compensation; valuation is properly determined as of the trial date or, in appropriate circumstances, the payment date.
- Attorney’s fee awards in dissolution proceedings are reviewed for abuse of discretion and may be upheld based on the parties’ relative financial circumstances.

## Conclusion

The court corrected the methodology for apportioning separate and community interests in a premarital residence by requiring credit for premarital appreciation, while otherwise affirming the trial court’s rulings that commingled stock purchases remained community property absent tracing, that the parties were not legally “separate and apart” under former Civil Code § 5118, and that the pension order and attorney’s fee award were within permissible bounds.


In re Marriage of Marsden, 181 Cal. Rptr. 910 (Cal. Ct. App. 1982)