## Facts

- Michelle M. Day (wife) and John V. Day (husband) began living together in June 1984 and married in California on May 4, 1985.
- Husband, an engineer, was the primary wage earner during the early marriage; wife worked outside the home but stopped working in January 1990 and remained unemployed.
- The parties purchased and operated a yarn store in California; it was not profitable and later closed.
- In June 1990, husband inherited approximately $500,000. Shortly after receiving the inheritance, he quit his engineering job.
- Husband used $200,000 of the inheritance to pay off the mortgage on the parties’ family home in Scotts Valley, California; the remainder was invested in stocks.
- Beginning in late 1990, husband managed the stock portfolio full time, and the family relied on principal and earnings from the investments for income.
- In August 1992, the family moved to Klamath Falls, Oregon, where husband purchased a house. The parties separated in December 1992, with two minor children involved.
- After separation, husband filed a separation action in California, and wife filed in Oregon; in November 1993, wife filed a petition for dissolution in Oregon.
- In the Oregon dissolution, the trial court treated the Scotts Valley residence as California property and applied California law to the $200,000 mortgage payoff, concluding it came from husband’s separate inheritance and awarding him a $200,000 credit.
- The trial court then divided the remaining property approximately equally, awarding the Klamath Falls house to wife and the Scotts Valley house to husband; the net effect left husband with roughly twice the assets awarded to wife.
- Wife appealed, challenging the property division (and also challenging the spousal support and attorney-fee rulings).

## Issues

1. Whether, in an Oregon dissolution, the court may apply California community-property reimbursement concepts to give husband a $200,000 credit for separate inheritance funds used to pay off the mortgage on a California residence.
2. Whether the resulting property distribution, which left husband with a substantially larger share of the parties’ estate, was “just and proper in all the circumstances” under Oregon dissolution law.
3. Whether the trial court erred in its spousal support and attorney-fee rulings.

## Decision

- The Oregon Court of Appeals reviewed the record de novo and modified the judgment solely as to the property distribution.
- The court concluded that the trial court’s approach—treating the inheritance-funded mortgage payoff as a dollar-for-dollar credit that materially skewed the overall split—did not produce a just and proper distribution under Oregon law.
- The court reworked the property division to achieve a more equitable overall allocation of the marital estate while still recognizing that the inheritance originated with husband.
- The court otherwise affirmed the dissolution judgment, leaving the spousal support and attorney-fee rulings in place.

## Legal Principles

- In an Oregon dissolution, the court must divide property as “just and proper in all the circumstances” under Oregon law.
- When marital property has connections to another state, another state’s law may be relevant to identifying or describing interests that arose there, but Oregon’s equity-based distribution standard controls the final allocation in the Oregon judgment.
- A spouse’s inheritance is generally treated as that spouse’s separate asset, but the use of inherited funds during the marriage (including to reduce debt on a family residence) is weighed within Oregon’s overall equitable distribution analysis rather than treated as an automatic reimbursement that determines the outcome.
- Oregon applies a presumption of equal contribution to property acquired during the marriage; a party seeking an unequal division must justify it based on the full circumstances.
- Appellate review in this dissolution appeal was de novo, allowing the Court of Appeals to modify the property division to reach an equitable result.

## Conclusion

The Court of Appeals held that the trial court’s California-law $200,000 reimbursement credit produced an overall division that was not just and proper under Oregon dissolution law, so it modified the property distribution to reach a fairer allocation while otherwise affirming the judgment, including spousal support and attorney fees.


Michelle M. Day v. John V. Day, 137 Or. App. 264, 904 P.2d 171 (1995)