Opinion
H047309
05-11-2022
In re the Marriage of WALTER R. and KIMBERLY M. PISTOR. v. KIMBERLY M. PISTOR, Respondent. WALTER R. PISTOR, Appellant,
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. 16FL178148
Danner, J.
In this dissolution of marriage action, appellant Walter Pistor (Walt) challenges orders after trial requiring that he reimburse respondent Kimberly Pistor (Kimberly) for certain expenditures of community funds made by him during the marriage-specifically for funds spent on his car-racing hobby and for loans made to friends and other entities. On appeal, Walt contends the reimbursement orders lack legal foundation and factual support. For the reasons explained below, we largely agree.
As is customary in family law proceedings, for the sake of clarity we refer to the parties by their first names as they appear in the briefing. (See Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1136, fn. 1.)
We conclude that the trial court erred as a matter of law in ordering reimbursement to the community for Walt's expenditures during the marriage on his personal hobby. As for the order requiring reimbursement to the community for Walt's loans of community funds, we conclude that substantial evidence in the record supports the trial court's factual findings, and the trial court did not abuse its discretion in ordering reimbursement for a portion of the loans. Nevertheless, we decide the trial court erred in ordering reimbursement for loans that were repaid to the benefit of the community during the marriage. Consequently, we reverse the judgment with directions.
I. FACTS AND PROCEDURAL BACKGROUND
A. Procedural History
Walt and Kimberly married in 2006 and separated in November 2016. After the separation, Kimberly filed and obtained a domestic violence restraining order against Walt. Around the same time, Walt filed a petition for dissolution of the marriage.
On December 5 and 12, 2018, and on January 28, 2019, the trial court held a court trial on issues in the action, including property division, reimbursements, and attorney fees. Both parties were represented by counsel. On July 26, 2019, the trial court entered its findings and order after hearing/decision. Walt filed a notice of appeal of the July 26 order on September 18, 2019.
In a bifurcated proceeding, the trial court terminated marital status at the request of the parties on December 12, 2018, finding all jurisdictional facts proven. The court also entered permanent spousal and child support, by agreement of the parties, subject to further modifications as to retroactivity and other inputs. None of these matters are at issue on appeal.
B. Evidence Presented at Trial
At the trial, the trial court heard testimony from Walt and Kimberly and each of their certified public accountant expert witnesses. We summarize only the evidence necessary for context and to describe the issues on appeal concerning reimbursements related to expenditures of community property for Walt's personal hobby and loans.
1. Finances of the Parties During the Marriage
Walt and Kimberly resided during their marriage in a house in San Jose, which Walt purchased before the marriage and held in his name. Kimberly also owned a separate property, which she lived in prior to the marriage, then rented out after the marriage until it was sold in foreclosure. They are the parents of two minor children, born in 2006 and 2009.
During the marriage, Walt worked in sales, earning a salary and commission that varied annually. Walt's passion was car racing; he tried to "earn a lot of money" in sales to produce the disposable income needed to pursue his passion. At the outset of the marriage, Kimberly worked as a pharmaceutical sales representative. In 2010, she took a severance package and then stayed home to raise their children. At the time of the trial, Kimberly had been working on a teaching credential which she expected to finish in May 2019.
The parties maintained one joint bank account during their marriage, into which Walt would transfer an allowance each month for expenses, including groceries, any purchases for Kimberly and the children, school uniforms and school expenses, birthday and Christmas presents, Kimberly's cell phone, and household goods. Kimberly testified that Walt would withhold money if he disapproved of something she had done. She had a separate savings account that held her severance money from 2010, which she would use when needed if the allowance did not cover her and the children's monthly expenses.
Walt told Kimberly that the finances were "none of [her] concern" and did not share financial information with her apart from the joint account. They did not hold any shared credit cards and did not view or discuss Walt's bank accounts or credit card statements. Kimberly was aware of Walt's love for cars and racing but "had no idea" at the time how much money he spent on his cars. He did not discuss with her either his expenditures on racing cars or the loans he made during their marriage.
Regarding the separate property that Kimberly owned and rented out after the marriage, she testified that Walt told her it was a financial drain and burden, since the rental income did not cover the expenses on the home and left a shortfall each month. After an attempted sale fell through, Kimberly lost the home to foreclosure. Her preference would have been to continue renting the house but she did not feel she had a choice and did not want to be a financial burden. Walt testified, however, that the decision to proceed with the foreclosure was mutual based on their financial status at the time, including Kimberly's decision to take a severance and stay home with the children, the fact that his salary had not yet grown to the high level it later attained, and the weak economy. Walt testified that Kimberly could have decided to maintain the residence despite the shortfall by using her severance funds.
According to Kimberly's closing trial brief, the foreclosure occurred in 2010.
2. Walt's Expenditures on His Car-Racing Hobby
At the time of the trial, Walt owned three cars for racing. One car was a 1993 Nissan 300ZX, purchased by Walt in 1998 before the marriage. Another was a Radical race car, appropriate only for track use, that he purchased during the marriage in 2015 using separate funds gifted to him by his parents. The third was a 2012 Nissan GT-R, purchased during the marriage with community property funds. After a problematic engine rebuild, the 2012 Nissan GT-R became nonoperational, and Walt spent "years chasing down the problem." Walt testified as to the other two cars that the Nissan 300ZX required some third-party maintenance work during the marriage, but he maintained the Radical race car himself.
The separate or community character of the vehicles (with the Nissan 300 ZX and Radical race car as Walt's separate property, and the Nissan GT-R as community property) was not in dispute at trial and is not at issue on appeal.
Over the course of the marriage, Walt spent substantial sums of money on his car-racing hobby. When presented on cross-examination with credit card statements showing expenditures at motor sport retailers and garages, Walt testified that he was not disputing that he had incurred the expenses but could not confirm for what purpose or vehicle he had incurred each expense. Walt reiterated that car racing is an expensive hobby. To be prudent, he tried to do his own work on the Radical race car and to make a lot of money in sales so that he could do what he loved. The evidence based on credit card statements showed that Walt spent a cumulative amount of $124,375 on improvements, modifications, and maintenance of these vehicles during the marriage.
3. Loans of Community Funds
Walt made multiple loans of community funds during the marriage, some of which he intended for investment purposes and others which he made to a friend and to his longtime preferred garage, Z Car Garage.
Walt testified that to diversify his investments, he made four "business-related" loans through a broker. They were "personal loans backed by a legalized promissory note [] collateralized by hard assets, specifically collectors' vehicles." Walt stated that Kimberly at the time was aware of the loans, which offered a much higher rate of return than bank interest rates. Although a "good majority" of the loans were paid off, the broker who administered the loans absconded with the remaining funds, which Walt had since been trying to recuperate. Walt recalled the loan amounts being $73,500 (which was paid back), $100,000 (which Walt was trying to recover), $15,000 (which was probably a "lost cause") and $32,000 (which the broker had absconded with and was not recovered). Walt testified that he was trying to determine the best course of action to recover the full principal on the three loans totaling $100,000, $15,000, and $32,000. The loan balance due at the time of trial was $80,652.
Walt also made loans of $15,000 and $45,000 to Z Car Garage. He eventually accepted repayment in the form of work performed over time on his cars, specifically the GT-R as well as the Nissan 300 ZX. Walt testified that he mentioned the loans to Kimberly but it "wasn't a big discussion" because he had always had work done on his cars. An e-mail from Walt to his contact at Z Car Garage in November 2012 indicated that he was transferring $45,000, though he told Kimberly it was $15,000 for investment purposes/growth in the business. Kimberly testified that she asked Walt about the amount he was going to loan to Z Car Garage after overhearing him say $75,000, and he represented in response that it was only $15,000. Kimberly did not know at the time that he actually went through with the loan for $45,000.
Walt also loaned $35,000 to a personal friend, Lou Strickland, which was paid back. The interest paid on that loan went into a PayPal account that primarily funded Walt's racing activities.
C. Trial Court's Ruling
On July 26, 2019, the trial court issued its findings and order after hearing/decision (order), from which Walt timely appealed.
"The existence of an appealable judgment is a jurisdictional prerequisite to an appeal." (Jennings v. Marralle (1994) 8 Cal.4th 121, 126.) To verify appellate jurisdiction over the appeal taken from the July 26, 2019 order, styled as "Findings and Order After Hearing/Decision" (some capitalization omitted) (and unaccompanied by any separate entry of judgment), we issued an order to show cause why the appeal should not be dismissed as premature. Having independently reviewed the record on appeal and considered appellant's uncontroverted response to the order to show cause, we are satisfied that the July 26, 2019 order determined the rights of the parties and disposed of all issues in the case, leaving none for future adjudication. According to well-established principles, it is not the form of the order but its" 'substance and effect . . . which is determinative.'" (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 698.) The order thus constituted the final and appealable judgment in this matter. (Code Civ. Proc., §§ 577, 904.1, subd. (a); see Dhillon v. John Muir Health (2017) 2 Cal.5th 1109, 1115.)
The order noted that on December 12, 2018 (in bifurcated proceedings), the trial court had issued a status only dissolution order and then proceeded to address the property division claims. After considering the evidence, argument, and posttrial briefing, the court resolved the remaining property division, equalization, and reimbursement claims as to the marital home, five vehicles (three of which we described ante), firearms, retirement and financial accounts, and children's expenses and other miscellaneous items. The trial court also found that an award of attorney fees was appropriate given the "demonstrated disparity between the parties' assets and access to funds to retain or maintain counsel" and Walt's ability to pay. The trial court awarded Kimberly $70,000 in attorney fees.
With respect to the issues on appeal, the trial court separately addressed Kimberly's reimbursement claims for the loans made during the marriage and for funds used for Walt's car-racing hobby.
1. Order to Reimburse for Loans Funded
The trial court found that "[t]he total amount of loans made by [Walt] where documentation and evidence was provided totals $265,500." The court noted the parties' conflicting testimony about whether Kimberly was informed of the full extent of the loans, Walt's apparent deceit in covering up the loan amount to Z Car Garage, and whether the loan repayments went toward household expenses.
The court rejected Walt's argument that lending money under the circumstances was not a breach of fiduciary duty. It reasoned, "Although the argument can be made that there was no breach of the fiduciary duty in lending community funds as an investment, the circumstances here indicate a breach of the fiduciary duty in lending the funds without consulting with [Kimberly] and attempts to deceive her in addition to how the funds were repaid."
The court found that the repayment of loan funds benefited Walt only, not Kimberly or the community, and that "[c]onsidering the totality of the circumstances in this case, the equities between the parties, and the Court's traditional equity powers and consistent with In re Marriage of Frick (1986) 181 Cal.App.3d 997, 1019-1020," reimbursement was appropriate. The trial court ordered Walt to reimburse Kimberly in the amount of $132,750 (calculated by taking half of the $265,500, which represented the sum of those loans the trial court found were supported by "documentation and evidence").
There appears to be some discrepancy between the total loan amount the trial court found supported by testimony and documentary evidence at trial ($265,500) and the total described by Walt in his trial testimony (which according to our review amounts to $315,500, before subtracting the $73,500 that was indisputably repaid). However, because neither party challenges the court's calculations, apart from its inclusion of $73,500 which constituted a repayment, not a loan, as we discuss in detail post (part II.C.2.b), we base our analysis on the trial court's calculated total of $265,500.
2. Order to Reimburse for Racing Hobby Expenditures
The trial court found, based on the evidence admitted at trial, that Walt had spent a total of $124,375 on his race car hobby between 2006 and 2016. The court granted Kimberly's reimbursement request, citing her testimony that Walt controlled the finances during the marriage and she was unaware of the extent of his expenditures on car racing. The court also relied on its findings that Walt received a trust fund of $1 million in 2012 "from which he could have paid for this hobby," and Kimberly's loss of her own separate property home during the marriage. The court concluded that rather than use the community funds "to the benefit of both parties and their separate interests, [Walt] used the funds to his benefit and enjoyment and to the detriment of [Kimberly] (and the loss of her separate property home)." The trial court ordered Walt to reimburse Kimberly $62,187.50.
II. DISCUSSION
Walt raises two claims on appeal. He contends that the trial court erred in granting reimbursement to Kimberly for (1) the expenditures he made on his personal car-racing hobby while the marriage remained intact, and (2) the loans he made during the marriage. Walt attacks the legal basis and factual support for both reimbursement orders. Kimberly responds that the trial court exercised its equitable powers to divide the community property and achieve a just result where the evidence showed that Walt deliberately used community funds on activities and investments that did not benefit the community and, as far as the loans, constituted a breach of Walt's fiduciary duty to his spouse.
A. General Principles
Certain general principles guide our resolution of the parties' dispute over the reimbursement orders. The basic premise of California marital property law "is that the marital community is viewed as a partnership in which the spouses are equal partners." (In re Marriage of Brigden (1978) 80 Cal.App.3d 380, 389 (Brigden).) During the marriage, the Family Code grants to either spouse "the management and control of the community personal property, . . . with like absolute power of disposition, other than testamentary, as the spouse has of the separate estate of the spouse." (Fam. Code, § 1100, subd. (a).) The law at the same time imposes constraints by requiring either spouse's management and control of community assets and liabilities to comport "with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence . . ., until such time as the assets and liabilities have been divided by the parties or by a court." (Id., subd. (e).) We discuss the rules governing fiduciary duty in more detail in our analysis of the loan-related reimbursement order, post (part II.C.).
Unspecified statutory references are to the Family Code.
Upon dissolution of marriage, the laws governing property division reflect this basic premise of equal partnership during the marriage by requiring the trial court to "divide the community estate of the parties equally." (§ 2550.) The rule mandating equal division of the community property fulfills the objective of the Legislature's adoption of a no-fault divorce regime. "[T]he fundamental objective of the Legislature with respect to the disposition of community property upon dissolution of a marriage was to provide for an equal division thereof as an additional way of advancing its primary no-fault philosophy." (In re Marriage of Juick (1971) 21 Cal.App.3d 421, 427 (Juick).)
Section 2550 thus "appears to be an implicit recognition of this equality in interest that prevailed during marriage." (Brigden, supra, 80 Cal.App.3d at p. 389.) "The theory behind such division is that 'in disposing of the property, a dissolution of marriage should be treated much like the dissolution of a business partnership. Regardless of the economic circumstances of business partners or of their moral conduct during the existence of the partnership, on dissolution the partners receive a portion of the assets commensurate with their respective partnership interests.'" (Id. at p. 390.)
The law furthermore vests the trial court with "broad statutory powers to accomplish a just and equal division of marital property (Fam. Code, §§ 2550, 2553) and [] 'broad discretion to determine the manner in which community property is awarded in order to accomplish an equal allocation.'" (In re Marriage of Greaux & Mermin (2014) 223 Cal.App.4th 1242, 1250.) In doing so, the court "may make 'any orders the court considers necessary' to achieve the statutory mandate. (Fam. Code, § 2553.)" (Id. at p. 1250.) The trial court's discretion, as expressed in statutory and decisional law, is guided by the goal to effectuate an equal division of community assets and liabilities upon dissolution of the marriage. (See ibid.; Brigden, supra, 80 Cal.App.3d at p. 390 [California's statute "establishes equal division as the general rule both in terms of the method of division and the result to be achieved"].)
Consistent with the no-fault principles underlying California's regime for the division of community property in marital dissolution, the trial court's discretion to effectuate an equal division of the community property upon dissolution of the marriage does not enable it to retroactively reallocate funds already spent by the community during the marriage. While there are certain exceptions created by statute or case law (as in cases involving misappropriation of community assets, or breach of fiduciary duty, which we discuss in more detail, post), these authorities do not support the general proposition that actions that occurred prior to the separation are subject to reimbursement or repayment. Thus, in evaluating whether one party improperly utilized community funds to his or her personal and separate benefit, it may be significant whether the challenged act occurred before or after separation.
Having set out these overarching principles, we turn to the parties' specific contentions here. We first address the reimbursement order for Walt's expenses for his car-racing hobby and then turn to the various loans Walt made from community funds.
B. Reimbursement for Personal Hobby Expenses
1. Contentions
Walt contends that the order requiring him to reimburse Kimberly for half the amount of community funds that he spent on his car-racing hobby during the marriage ($62,187.50) lacks any basis in statutory or decisional law. Walt further asserts that even assuming the trial court could lawfully order the reimbursement for car-racing hobby expenses, the evidence did not support the amount awarded.
Kimberly counters that nothing in the statutory or decisional law limits the trial court's ability to order reimbursements to effectuate a fair and equitable outcome. She contends that such a narrow application of the property division laws would be inconsistent with the broad authority granted to the trial courts in resolving property division matters and contrary to the spirit and practice of family law. Kimberly further maintains that the evidence at trial was sufficient to support the trial court's order under the theory that community reimbursement may be proper when community funds are used to improve separate property, or when community funds ostensibly used to improve community property are in fact shown to have benefited only one party.
2. Analysis
Because the parties disagree whether there exists any lawful basis for the reimbursement order, we begin by examining the potential grounds for reimbursement and consider their application to the facts found by the trial court. This is a predominantly legal question that we review de novo. (Haworth v. Superior Court (2010) 50 Cal.4th 372, 384.)
Walt looks to the statutory and decisional law addressing reimbursement in divorce proceedings. He asserts that the right to reimbursement (whether by charging a party's share of the community property or ordering reimbursement from a party's separate property) is principally dictated by statute. Provisions of the Family Code that address rights of reimbursement include section 900, et seq. (providing for rights of reimbursement based on separate or community liability for a spouse's debts during marriage), section 1101 (allowing a spouse to recover for a breach of fiduciary duty that impairs the claimant spouse's present interest in the community estate), section 2602 (authorizing reimbursement to the community of funds "deliberately misappropriated by the party to the exclusion of the interest of the other party in the community estate"), section 2626 (authorizing reimbursement when deemed appropriate "for debts paid after separation but before trial"), section 2640 (for reimbursement for traceable separate funds used to acquire community property or to acquire separate property for the other spouse), and section 2641 (authorizing reimbursement for community contributions to education or training that "substantially enhances" a party's earning capacity).
We agree with Walt's contention that the trial court's orders for car-racing related reimbursements do not fall within any of these provisions. Walt's spending on maintenance, improvements, and equipment for his race cars during the marriage does not qualify as a postseparation use of a community asset by one party. (See, e.g., In re Marriage of Watts (1985) 171 Cal.App.3d 366, 373-374.) His use of community funds did not go to pay down the debt on separate real property (see, e.g., In re Marriage of Moore (1980) 28 Cal.3d 366, 371-372; In re Marriage of Marsden (1982) 130 Cal.App.3d 426, 438-439), nor to improve separate realty (see, e.g., In re Marriage of Wolfe (2001) 91 Cal.App.4th 962, 967 (Wolfe)). And there is no evidence to suggest that Walt's expenditures constituted tortious or criminal conduct by a spouse, warranting reimbursement for the loss to the community (see, e.g., In re Marriage of Stitt (1983) 147 Cal.App.3d 579, 587-588; In re Marriage of Bell (1996) 49 Cal.App.4th 300, 309), or resulted in destruction or impairment of the community estate in the postseparation period (see, e.g., In re Marriage of Beltran (1986) 183 Cal.App.3d 292, 295; In re Marriage of Feldner (1995) 40 Cal.App.4th 617, 624).
Nevertheless, Kimberly asserts that the family law court is "a court of equity and fairness" (In re Marriage of Boswell (2014) 225 Cal.App.4th 1172, 1174) with "broad equitable discretion" (ibid.) to achieve just results. Kimberly contends that other provisions of the Family Code support the trial court's exercise of discretion to achieve a fair outcome in cases such as this, where "the interests of justice require an unequal division of the asset or liability" (§ 2556) or economic circumstances warrant the award of a community asset to one party "on such conditions as the court deems proper to effect a substantially equal division of the community estate" (§ 2601).
Kimberly maintains that statutory authority is only one facet of the trial court's broader equitable powers which allow it to make an unequal distribution of assets if it finds that a party's unilateral conduct with respect to the community property did not benefit the community. She relies primarily on cases like In re Marriage of Frick (1986) 181 Cal.App.3d 997 (Frick) and Wolfe for the proposition that the community can be reimbursed for community property used to improve separate property. Kimberly further argues that even where one spouse spends community money on what ordinarily would be considered a community expense, the court is empowered to exercise its discretion and make an unequal distribution of assets if it finds that the expenditure did not benefit the community. In support of this proposition, she cites Somps v. Somps (1967) 250 Cal.App.2d 328 (Somps), In re Marriage of Leni (2006) 144 Cal.App.4th 1087 (Leni), and Wolfe.
Although Kimberly correctly observes that the trial court possesses broad authority to divide property to achieve equitable results, we conclude that her reliance on the court's equitable powers and certain statutory provisions is misplaced as a means of justifying the reimbursement order for race car-related expenses. Sections 2556 and 2601 each specify circumstances which, in practice, may create limited exceptions that enable the trial court to vary the mathematically equal division of the community estate required by section 2550. Section 2556 pertains to the trial court's continuing jurisdiction to award any community estate assets or liabilities that were not adjudicated in a prior judgment and directs, in that situation, equal division of the omitted community estate asset or liability, "unless the court finds upon good cause shown that the interests of justice require an unequal division of the asset or liability." (§ 2556.) Section 2601 authorizes the trial court to award an asset of the community estate in a conditional manner so as "to effect a substantially equal division of the community estate." (§ 2601.) It applies "[w]here economic circumstances warrant" (ibid.) and has been narrowly construed "to mean that the 'economic circumstances' which empower a court to award an asset to one spouse alone are limited to those circumstances where the asset is not subject to division without impairment." (Brigden, supra, 80 Cal.App.3d at p. 392; see also In re Marriage of Tammen (1976) 63 Cal.App.3d 927, 930 [contemplated application "where a major item of community property [is] not reasonably subject to division"].)
Neither provision addresses money spent years before the separation. Funds expended cannot be considered an asset of the community estate subject to "the general rule of equal in kind division" (Brigden, supra, 80 Cal.App.3d at p. 391) or to the terms of section 2556 or 2601. Therefore, neither statute supports the trial court's order here.
Kimberly also references section 2602 as support for the proposition that the trial court has broad latitude to order reimbursements to effectuate a fair and equitable outcome. As noted, ante, section 2602 authorizes the trial court to require reimbursement to the community where one spouse is found to have "deliberately misappropriated" assets "to the exclusion of the interest of the other party in the community estate." (§ 2602.) Courts have interpreted "deliberate misappropriation" within the meaning of the statute as requiring more than a negligent mishandling of assets or self-interested expenditure of community funds. (See In re Marriage of Schultz (1980) 105 Cal.App.3d 846, 855 [defining" 'deliberate misappropriation'" as a form of "calculated thievery by a spouse, not the mishandling of assets"]; accord In re Marriage of Partridge (1990) 226 Cal.App.3d 120, 126].) While the trial court referenced Walt's appropriation of funds to his own benefit in regard to his lending decisions, discussed in more detail post, the court made no finding of deliberate misappropriation under section 2602. Nor did Kimberly at any point at trial assert that Walt's expenditures on his hobby amounted to deliberate misappropriation. Section 2602, therefore, does not provide authority for the reimbursement order.
We are furthermore not convinced that the reimbursement order comes under other recognized authority of the court to reimburse the community in cases where one spouse makes unilateral use of community funds to achieve a separate property benefit or to support an activity from which only that spouse benefits. Unlike cases in which reimbursement is ordered for a spouse's unilateral application of community funds to pay a separate liability or improve separate real property, we are unaware of any case authority in which reimbursement has been ordered for expenses incurred during the marriage on a personal hobby-even for the upkeep or improvement of non-realty separate property like Walt's Nissan 300ZX and Radical race car, or for putative improvements to a community asset, as for the Nissan GTR. None of the cases that Kimberly relies upon extends this far.
For example, the California Supreme Court previously decided in a marital dissolution case that the use of community funds to pay one spouse's separate property income taxes supported an order requiring that spouse to reimburse the community for the sum paid. (In re Marriage of Epstein (1979) 24 Cal.3d 76, 89, superseded by statute on other grounds as stated in In re Marriage of Walrath (1998) 17 Cal.4th 907, 914.) In its analysis, the high court cited Somps, which Kimberly references as support for her argument that the trial court had discretion to order reimbursement for Walt's expenditures on the Nissan GTR. However, the Somps and Epstein decisions both involved postseparation use of community funds by the benefiting spouse. In Epstein, the husband withdrew community funds to pay his separate tax liability, incurred based on income earned after separation. (Epstein, at p. 89.) This timing is a critical distinction, rendering these cases inapposite to the facts here.
In Somps, the husband borrowed the funds in question about one year after the couple separated and the divorce proceeding commenced, using some of the community obligation "for his personal use and benefit." (Somps, supra, 250 Cal.App.2d at p. 340.) "It is axiomatic that cases are not authority for propositions not considered." (People v. Ault (2004) 33 Cal.4th 1250, 1268, fn. 10.) We decline to construe these cases as authority for a proposition-here concerning the pre-separation use of community funds for one spouse's personal use and enjoyment-which the cases do not address. So too, in Leni, a case we discuss in more detail post, the discussion of a benefit derived by one spouse arises in the context of a breach of fiduciary duty claim under section 721. (Leni, supra, 144 Cal.App.4th at p. 1092.) Neither party here suggests that Walt's spending on race cars constituted a statutory breach of fiduciary duty, rendering Leni inapt on this point.
Frick and Wolfe, on the other hand, are pertinent in that they address questions of community reimbursement for separate real property improvements during marriage. Nevertheless, neither case supports the reimbursement order here. In Frick, the court considered a former wife's claim to reimbursement for her former husband's alleged use of community funds to improve a restaurant and motel business that he operated during the marriage on his separate real property. (Frick, supra, 181 Cal.App.3d at pp. 1006- 1007, 1019.) The court reasoned, following an examination of the historical rule concerning a husband's use of community funds to improve his separate property without the wife's consent, that changes starting in 1975 to the community property law (granting both spouses equal management and control of the community real and personal property) should not "alter the basic principles" underlying a wife's historical right to reimbursement when her husband used community funds to improve his separate property without the wife's consent. (Id. at p. 1019.) The court explained that "the effect of this change should be to place each spouse in the same position as the husband was before 1975. If either spouse appropriates community funds for his or her own benefit, without the consent of the other spouse, the community should be reimbursed. Even if in theory both spouses have an equal right to management and control, if one spouse acts in his or her self-interest to the detriment of the community interest, the community should be entitled to restitution." (Id. at pp. 1019-1020.) Somewhat more recently in Wolfe, the Court of Appeal similarly decided there was "no logical basis for denying a spouse reimbursement for a community-funded improvement to the other spouse's separate property." (Wolfe, supra, 91 Cal.App.4th at p. 967.)
We recognize that the language in Frick, read broadly and quoted in isolation, may be viewed as generally requiring a spouse who "acts in his or her self-interest to the detriment of the community interest" to reimburse the community. (Frick, supra, 181 Cal.App.3d at p. 1020). However, in spite of its broad language, Frick's analysis makes clear its intent to apply the historical (pre-1975) rule equally as between spouses. (Id. at pp. 1019-1020.) That rule appears firmly grounded in application to real property improvements or payments toward taxes or against liens on such separate real property. (See, e.g., In re Marriage of Warren (1972) 28 Cal.App.3d 777, 781 [clarifying reimbursement to the community in terms pertaining specifically to the husband's use of "community personal property . . . to improve separate real property"]; Somps, supra, 250 Cal.App.2d at p. 338 [applying rule that the wife is entitled to compensation to the extent that her share of the community funds increased husband's separate real property value or in the actual amount community funds were used for taxes and incidental expenses on the property]; see also In re Turner's Estate (1939) 35 Cal.App.2d 576, 578-579; Provost v. Provost (1929) 102 Cal.App. 775, 780-781.)
There is no indication the court in Frick intended to expand the historical rule of reimbursement to cover expenditures other than those traditionally associated with separate real property. And while Wolfe and related cases recognize that the measure of the community's reimbursement rights is not always tied to the value of the separate asset, since "improvements do not always enhance the value of an asset; indeed, ill-advised improvements may well diminish the value of property" (Wolfe, supra, 91 Cal.App.4th at p. 972), those rules, consistent with longstanding precedent, are grounded in real property improvements. Therefore, they do not support the court's order here, which ordered reimbursement based in part on improvements to personal property.
What is more, we agree with Walt that for courts to engage in a retrospective examination of the spending choices on personal hobbies made by one or both spouses prior to separation and, in an apparent effort to effectuate a fairer division of community property, order restitution to the party who benefited least, or not at all, from those choices would be inconsistent with our state's policy of no-fault divorce and the concomitant requirement that community assets are divided equally. (See Brigden, supra, 80 Cal.App.3d at pp. 389-390; Juick, supra, 21 Cal.App.3d at p. 427.) Walt maintains that allowing a court to order reimbursement for past expenditures like those here "would open the door to absurd results" whereby any cost to the community enjoyed primarily or only by one spouse could lead to an order to reimburse the community in an attempt to "recompense perceived historical inequities in the relationship" and "retroactively 'even the score.'" Indeed, a spouse's spending of even substantial amounts of community money during the marriage on an activity and its accoutrements- at least where the activity is known to the community and does not violate any stricture of the community property laws-appears to fall squarely within the statutory authorization for "absolute power of disposition, other than testamentary" of community personal property. (§ 1100, subd. (a).)
Here, Kimberly confirmed at trial that she was aware of Walt's passion for race cars and had known even before their marriage that it was "something very important to him." Though she did not know what amounts Walt expended during the marriage to maintain, repair, and enhance the vehicles and testified that she would not have agreed to those amounts, had she known, there was no evidence to suggest that her ignorance of the cost of his hobby was due to active concealment or deceit by Walt. Rather, Kimberly testified that when bank statements arrived in the mail, she would leave them for Walt. She did not ask to see the statements because she "knew he would be upset" if she reviewed them. To charge Walt reimbursement to the community under these circumstances for such preseparation expenditures would undermine the notion that the division of property is based on the community interest upon dissolution of the marriage.
We therefore conclude that absent evidence linking the use of community property by either spouse on a personal hobby, preference, or pastime, to criminal wrongdoing, fraud, deceit, or deliberate misappropriation of community property (such as might trigger reimbursement under section 2602) or to a breach of fiduciary duty (such as might apply to a transaction between spouses under section 721 whereby one spouse takes unfair advantage) or other recognized bases for a reimbursement claim, the expenditure of community funds during the marriage on one spouse's preferred pastime or hobby and related personal property are not subject to reimbursement to the community.
We recognize, consistent with case authority, the general proposition that the trial court can exercise discretion in accordance with equitable principles to order reimbursement where "one spouse acts in his or her self-interest to the detriment of the community interest." (Frick, supra, 181 Cal.App.3d at p. 1020.) However, the trial court must exercise its discretion in a manner" 'grounded in reasoned judgment and guided by legal principles and policies appropriate to the particular matter at issue.'" (F.T. v. L.J. (2011) 194 Cal.App.4th 1, 15.) "[A] discretionary order based on the application of improper criteria or incorrect legal assumptions is not an exercise of informed discretion and is subject to reversal even though there may be substantial evidence to support that order." (Id. at p. 16.) Applying our independent judgment to the legal principles and policies discussed ante, we hold that statutory and decisional law providing for the court's discretion to order reimbursement to the community for the use of community funds to improve or maintain one spouse's separate real property, or to otherwise benefit that spouse prior to the parties' separation, does not encompass the expenditures on Walt's car-racing hobby in this case.
Because such retroactive reallocation is not a valid exercise of the trial court's discretion as set forth in statute and case precedent, the trial court erred in ordering Walt to reimburse Kimberly for half the amount of community funds spent during the marriage on his car-racing hobby. The order for reimbursement to the community of $62,187.50 must therefore be reversed, and the judgment modified accordingly.
We turn next to Walt's claim that the trial court erred in ordering reimbursement to Kimberly for loans made by Walt during the marriage using community funds and in breach of the fiduciary duty owed between spouses.
C. Reimbursement for Loans
1. Applicable Law and Standards of Review
In managing community property, spouses have fiduciary duties to each other. (Leni, supra, 144 Cal.App.4th at p. 1091.) Specifically, "spouses have fiduciary duties to each other as to the management and control of community property." (In re Marriage of Fossum (2011) 192 Cal.App.4th 336, 347 (Fossum), citing §§ 721, subd. (b), 1100, subd. (e).)
Section 721 "recognizes the confidential relationship held by spouses. That relationship is a fiduciary relationship 'impos[ing] a duty of the highest good faith and fair dealing on each spouse[.]' (§ 721, subd. (b).)" (In re Schleich (2017) 8 Cal.App.5th 267, 276 (Schleich).) Section 1100, within the same division of the statute, "addresses management and control of community property." (Schleich, at p. 276.) With certain exceptions, it inures each spouse with "like absolute power of disposition" of the community property (§ 1100, subd. (a)) and, at the same time, imposes on the parties the requirement that they "act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence." (Id., subd. (e).)
Section 1101 creates a right of action and specific remedies for the aggrieved spouse. (Schleich, supra, 8 Cal.App.5th at p. 277.) A spouse may assert "a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate." (§ 1101, subd. (a).) The remedies for a breach of fiduciary duty "include . . . an award . . . of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney's fees and court costs. The value of the asset shall be determined to be its highest value at the date of the breach of the fiduciary duty, the date of the sale or disposition of the asset, or the date of the award by the court." (§ 1101, subd. (g).) The spouse asserting a breach of fiduciary duty claim has the burden of proving the value of the community asset that is the subject of the claim. (See Bono v. Clark (2002) 103 Cal.App.4th 1409, 1430.)
In contrast with our de novo review of the legal basis for the car-racing expenses reimbursement claim, ante, whether the trial court erred in finding a breach of fiduciary duty and assigning the reimbursement amount presents a predominantly factual question based on the record developed at trial. On appeal, we review the factual findings of the trial court supporting its conclusion that Walt breached fiduciary duties owed to Kimberly for substantial evidence, resolving all conflicts and drawing all reasonable inferences in favor of the decision. (In re Marriage of Kamgar (2017) 18 Cal.App.5th 136, 144 (Kamgar).) "We review for abuse of discretion the trial court's decision concerning the appropriate remedy for breach of fiduciary duty." (Id. at p. 150.) To the extent Walt challenges the scope of fiduciary duty or authorized remedy, that question presents a legal issue which we review de novo. (Id. at p. 144.)
Walt frames his attack on the trial court's order with respect to his loans of community funds as requiring de novo review of whether the court could lawfully order (1) reimbursement to the community for loans that were repaid to the community and did not result in loss to the community estate, as well as (2) reimbursement for loans that were not repaid but arguably were not made in breach of fiduciary duty under sections 721 and 1101. While courts typically describe their review of a judgment on claims of a spouse's breach of fiduciary duty for substantial evidence, there is some variation in how courts articulate the applicable standard of review. As noted in one recent Court of Appeal decision, the difference in each court's stated approach does not alter the relevant principles of review that apply here:" 'The abuse of discretion standard is not a unified standard; the deference it calls for varies according to the aspect of a trial court's ruling under review. The trial court's findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed de novo, and its application of the law to the facts is reversible only if arbitrary and capricious.'" (In re Marriage of DeSouza (2020) 54 Cal.App.5th 25, 33 (DeSouza).)
2. Analysis
The trial court ordered reimbursement by Walt in the amount of $132,750 for his loans of community funds, which the court found were made "without consulting" Kimberly and with "attempts to deceive her in addition to how the funds were repaid," in breach of his fiduciary duty. The court also found that any repayment of the funds benefited Walt only, not Kimberly or the community. Walt challenges both the finding that he breached his fiduciary duty to Kimberly and the community's right to reimbursement for any such breach here.
a. Breach of Fiduciary Duty
Walt asserts that the fiduciary duty spouses owe to one another, as defined in the law, does not prohibit one spouse from entering into third party transactions, including to lend money, such as occurred here. He maintains that the fiduciary relationship set forth in section 721 is narrower in scope than the fiduciary relationship of business relationships and includes only a limited duty of care in the management of community assets, amounting to a duty to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. Walt submits that because he had the right to enter into the lending transactions, did not obtain any unfair advantage over Kimberly in doing so, and did not engage in grossly negligent, reckless conduct, or intentional misconduct, his lending decisions did not breach any fiduciary duty to Kimberly. He further argues that inherent in each party's" 'absolute power of disposition'" under section 1100 is the risk of loss and possibility that a project or investment proves disadvantageous in hindsight.
These assertions, however, ignore the basis of the trial court's finding, which was not only Walt's failure to disclose the various loans to Kimberly but his "attempts to deceive her" in relation to loan amounts and repayment plans. These findings are supported by substantial evidence. Although Walt testified that Kimberly was aware of the "business-related" loans made for investment purposes through a broker, Kimberly testified that Walt generally did not share financial information with her, apart from the deposits into the joint account for expenses, and did not review the loans or promissory notes with her. She testified, regarding the loans to Rob Fuller at Z Car Garage, that when she overheard Walt discussing $75,000 and asked him about it, he told her the amount was only $15,000. Kimberly did not know that Walt "actually gave [the] money" until after their separation and the discovery in this matter. Nor did she know that he had arranged with Z Car Garage to exchange services for the loan repayment.
Walt's testimony confirmed that an e-mail he sent to Rob at Z Car Garage in November 2012 stated he had transferred $45,000 but told Kimberly it was $15,000. Walt also testified, with respect to the loan of $35,000 to his friend, Lou Strickland, that the monthly repayments on that loan went into a PayPal account in Walt's name and helped him fund his car-racing expenses. This record amply supports the trial court's findings underlying its determination that Walt breached his fiduciary duty to Kimberly with respect to the loans of community funds. (DeSouza, supra, 54 Cal.App.5th at p. 33.)
The record also belies any argument that the trial court abused its discretion in deeming this conduct to be a breach of fiduciary duty within the meaning of sections 721 and 1100, subdivision (b). The trial court's" 'application of the law to the facts is reversible only if arbitrary and capricious.'" (DeSouza, supra, 54 Cal.App.5th at p. 33.) As previously noted, to the extent this argument requires us to examine the scope of the fiduciary duty set forth in sections 721 and 1100, we apply our independent review. (Kamgar, supra, 18 Cal.App.5th at p. 144; see Schleich, supra, 8 Cal.App.5th at p. 276.)
Walt is correct in noting that the fiduciary obligations of spouses specified in section 721, subdivision (b), which apply "in transactions between themselves" (§ 721, subd. (b)) and prohibit either spouse from taking unfair advantage of the other, impose only a limited duty of care as set forth in the referenced sections of the Corporations Code and do not extend to principles of reasonable care and prudent investing as set forth, respectively, in Probate Code sections 16040 and 16047. (Kamgar, supra, 18 Cal.App.5th at p. 149; see also Leni, supra, 144 Cal.App.4th at p. 1092 [rejecting an expansive interpretation of a spouse's fiduciary duties beyond the Family Code to encompass the entire Corporations Code, given that section 721, subdivision (b) expressly identifies the rights and duties that apply].)
Section 721, subdivision (b), states as follows: "Except as provided in Sections 143, 144, 146, 16040, 16047, and 21385 of the Probate Code, in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following: [¶] (1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying. [¶] (2) Rendering upon request, true and full information of all things affecting any transaction that concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions. [¶] (3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse that concerns the community property." (§ 721, subd. (b).)
Even so, the delineated fiduciary obligations are not as restricted as Walt submits. As case authority makes clear, section 721 "provides that accountability for the management of community assets is a fundamental aspect of the fiduciary duties owed between spouses." (In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252, 1269 (Prentis-Margulis).) The rights and duties identified include, but are not limited to: "(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying. [¶] (2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. . . . [¶] (3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property." (§ 721, subd. (b)(1)-(3).) In this way, section 721 "creates a broad fiduciary relationship between spouses in their transactions with each other." (In re Marriage of Simmons (2013) 215 Cal.App.4th 584, 590 (Simmons).)
More specifically, by expressly incorporating "the same rights and duties of nonmarital business partners, as provided in" section 16403 of the Corporations Code, the statute "makes clear that the duty to disclose relevant information concerning transactions affecting the community property is an affirmative and broad obligation." (Prentis-Margulis, supra, 198 Cal.App.4th at p. 1269.) Indeed, courts interpreting this disclosure duty note that the incorporation of Corporations Code section 16403, subdivision (c)(1) (requiring a member of a partnership to furnish, without demand, information concerning the partnership's business and affairs) in the family law context means that each spouse must similarly provide the other, without demand, any information concerning the management and control of the community property. (Kamgar, supra, 18 Cal.App.5th at p. 146; see Cal. Family Law Practice & Procedure (Matthew Bender 2d ed. 2014) § 24.11.)
What is more, Walt's narrow interpretation of the fiduciary duty between spouses all but ignores the application here of section 1100, concerning spousal duties in the management and control of community personal property. Section 1100, as set forth ante (see part II.A.), provides both spouses with mutual, "absolute power of disposition" of community personal property (§ 1100, subd. (a)), subject to the fiduciary duties each has to the other in the "management and control of the community assets and liabilities." (Id., subd. (e).)
Section 1100 "specifies that each spouse is mutually entrusted with full individual authority to manage and control community property, including disposing of or otherwise alienating it ([§ 1100], subd. (a)), but each spouse also mutually owes the other a fiduciary duty with respect to the property ([§ 1100], subd. (e))." (Kamgar, supra, 18 Cal.App.5th at p. 144.) It "not only prohibits a spouse from engaging in certain conduct, such as making a unilateral gift of community personal property or disposing of it 'for less than fair and reasonable value, without the written consent of the other spouse' (§ 1100, subd. (b)), but it also requires each spouse to act as a fiduciary toward the other in the management of community assets 'in accordance with the general rules governing fiduciary relationships . . . as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court.'" (Prentis-Margulis, supra, 198 Cal.App.4th at pp. 1269-1270.) Thus, section 1100 both "references the section 721 fiduciary relationship and declares it to be operative with respect to the management and control of community property, 'until such time as the assets and liabilities have been divided by the parties or by a court.' (§ 1100, subd. (e).)" (Simmons, supra, 15 Cal.App.4th at p. 590, italics omitted.) There is, accordingly, no support for the proposition that the statutorily imposed duties of disclosure and accounting in the management and control of community assets would not extend to the undisclosed lending of community funds.
Having determined that substantial evidence in the record supports the trial court's findings regarding Walt's lending of undisclosed amounts of community money and the provision of misleading information to Kimberly regarding the nature and repayment of the loans, and in light of the "affirmative and broad obligation" to disclose that information to his spouse (Prentis-Margulis, supra, 198 Cal.App.4th at p. 1269), we decide that the trial court's determination that Walt breached his fiduciary duty to Kimberly with respect to the loans was both supported by substantial evidence and within the court's exercise of discretion.
b. Right of Reimbursement
Walt contends that even assuming the trial court's determination as to breach of fiduciary duty was valid-as we have indeed concluded-the trial court erred in ordering reimbursement. He advances two grounds for error on this basis.
First, he asserts that those loans which were repaid during the marriage "cannot have resulted in a loss to the community" and thus did not support the remedy awarded by the court. Walt points to the trial court's summary of the evidence received at trial, in which the court noted that certain funds had been repaid, including some of the "business-related" funds, the loan to Walt's friend Lou Strickland (the repayment of which went into Walt's PayPal account), and the loans to Z Car Garage "with service and maintenance repairs performed on two vehicles." Walt submits that even if the evidence showed he spent the repaid money on himself (which he maintains was not established at trial), there is still no harm to the community, the end result being no different than if he had never lent the money but instead had spent it directly.
Second, Walt asserts that those loans which were not repaid and resulted in a loss at the time of their default do not support the remedy imposed by the court, since section 1101 authorizes a remedy "for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate." (§ 1101, subd. (a).) Walt contends that because the transactions at issue lost money before the parties undertook to divide the community estate, that remedy does not apply.
We examine these arguments in view of the statutory remedies afforded by section 1101. That section provides, in relevant part, that "[a] spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse's undivided one-half interest in the community estate." (§ 1101, subd. (a).) The remedies authorized for breach of the fiduciary duty by one spouse under sections 721 and 1100 "shall include, but [are] not be limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney's fees and court costs. The value of the asset shall be determined to be its highest value at the date of the breach of the fiduciary duty, the date of the sale or disposition of the asset, or the date of the award by the court." (§ 1101, subd. (g).)
The trial court did not identify section 1101 as authority for its reimbursement order for the loans; instead, the court referred generally to the "totality of the circumstances in this case, the equities between the parties, and the Court's traditional equity powers and consistent with [Frick], which held that if either spouse appropriates community funds for his or her own benefit, without the consent of the other spouse, the community should be reimbursed" as the basis for its order. We nevertheless infer from the court's application of fiduciary duty and assignment of remedy that the remedy awarded (half of the $265,500 loaned by Walt) is derived from section 1101. The parties' pretrial briefing also supports this conclusion.
As we understand his briefing, Walt essentially challenges the trial court's order on the basis of section 1101's requirement of "impairment" to the community. (§ 1101, subd. (a).) To the extent the trial court's determination rests on its factual finding that the repaid money benefited only Walt, not Kimberly or the community, we review the court's finding for substantial evidence. However, insofar as the trial court's exercise of discretion in assigning the remedy also turns on the scope of its authority under section 1101, we review the meaning of the statute de novo. (Schleich, supra, 8 Cal.App.5th at p. 276.) We begin with the latter question.
By its plain terms, section 1101 authorizes a claim and associated remedy for "any breach of the fiduciary duty that results in impairment to the claimant spouse's present undivided one-half interest in the community estate" (§ 1101, subd. (a), italics added), including transactions that "have caused or will cause a detrimental impact to the claimant spouse's undivided one-half interest in the community estate." (Ibid.) The terms "impairment" and "detrimental impact" suggest that a breach of fiduciary duty alone does not support issuance of a remedy, absent some measurable diminishment to the claimant's present one-half interest in the community estate.
Case authority is instructive to understand the application of these provisions. In Schleich, a panel of this court held that the trial court erred in ordering reimbursement for a postseparation failure to disclose income received during the marriage and spent for the mutual benefit of the community prior to separation, "because that income, having been spent, is no longer part of the community estate when the postseparation breach occurred." (Schleich, supra, 8 Cal.App.5th at pp. 281-282.) The court in Schleich distinguished the application of a section 1101 remedy to a postseparation breach involving assets dissipated before separation from circumstances where, like here, the loss of funds arose from a finding of preseparation breach. (Id. at p. 282.) With respect, however, to the husband's failure to account (postseparation) for the balance due on a loan of community funds that he had made during the marriage, the "failure to account for that asset was a breach of his disclosure duty, entitling [his aggrieved spouse] to half the asset under subdivision (g)." (Id. at p. 284.) By contrast, the husband's failure to account for the partial repayment (during the marriage) of the loaned community funds was "not a fiduciary breach under section 1101 because it did not impair" the wife's then-community interest, since the repaid money had been invested at the time and the investment properly disclosed as an asset. (Id. at p. 284.)
Other published decisions further illustrate the application of a section 1101 remedy of reimbursement for community interest lost due to a preseparation breach. (See, e.g., Kamgar, supra, 18 Cal.App.5th at pp. 147-148 [affirming judgment of dissolution requiring the former husband to reimburse $1,952,056.50 to the community for his breach of his fiduciary duty of disclosure, or half of the total loss incurred, following the husband's "undisclosed decision" during the marriage to invest millions in community funds in options trading]; Fossum, supra, 192 Cal.App.4th at p. 347 [noting that wife had breached her fiduciary duty by taking out a $24,000 cash advance prior to separation without disclosing the charge to her spouse, requiring reimbursement to the community of $12,000 under § 1101, subd. (g)].)
While we perceive nothing in the statutory language or case authority to support Walt's contention that funds lost prior to separation and before the community's attempt to divide the estate are categorically precluded from reimbursement, the required impairment of the aggrieved spouse's present interest in the community estate does not support reimbursements ordered on funds which were repaid to the community during the marriage and were not misappropriated.
Uncontroverted evidence in the record established that the community received $73,500 in repayment of a loan by wire transfer in May 2013. There is no evidence, express or implied, that Walt in some way appropriated or diverted the repaid funds for his own use. Unlike the evidence adduced at trial regarding the $35,000 repaid to Walt's PayPal account for the loan to his friend Lou Strickland, used primarily to support his race car hobby, or the $60,000 purportedly repaid on the loan to Z Car Garage through services on two of the vehicles, Kimberly produced no evidence at trial-and points to none in her respondent's brief on appeal-from which we might infer support for the trial court's finding that "[t]he repayment of these funds benefited [Walt] only, not [Kimberly] or the community" with respect to the $73,500 in repaid community funds.
In its order, the trial court noted Walt's testimony as to the various loans that "some had been paid back." The trial court did not specify the repaid money's use or disposition in the community but confirmed the evidence showing a "wire transfer paying back a loan" in May 2013, referring to the "wire transfer for $73,500 (dated 5/08/13)." In addition to the $73,500 repaid to the community in May 2013, the trial court recognized, as previously noted, funds repaid on the $35,000 loan to Walt's friend Lou Strickland, which were deposited in Walt's PayPal account and primarily went to help support his racing hobby, and evidence that of the $60,000 loaned to the Z Car Garage, the money was apparently repaid in "service and maintenance repairs performed on two vehicles."
This record demonstrates that substantial evidence supports the trial court's finding that "[t]he repayment of these funds benefited [Walt] only, not [Kimberly] or the community" only with respect to the $35,000 Strickland and $60,000 Z Car Garage loans. Moreover, the statutory basis for reimbursing the community for Kimberly's one-half of the loans based on the trial court's factually supported finding of fiduciary breach (§ 1101, subd. (a)) differentiates the reimbursement of the loan proceeds from Walt's preseparation expenditures on his car-racing hobby. As described, ante, the trial court's order on the hobby expenditures lacks statutory authority and runs counter to California's no-fault divorce scheme.
Nevertheless, we are unable to ascertain any substantial evidence in the record to uphold the trial court's implied finding that the repayment of $73,500 solely benefited Walt. We therefore determine that the community received and absorbed the repaid amount into the community estate. The $73,500 in repaid loan funds was received by the community long before separation and, consequently, could not be counted among the total "impairment" to Kimberly's undivided one-half interest in the community estate. (§ 1101, subd. (a).) (Schleich, supra, 8 Cal.App.5th at pp. 281-282; cf. Kamgar, supra, 18 Cal.App.5th at pp. 147-148.) The receipt of the $73,500 as a community asset during the marriage precludes that amount from being counted among the total that Walt loaned in community funds, in breach of his fiduciary duty, and was either not repaid or was repaid only to his benefit.
In sum, we conclude that substantial evidence supports the trial court's finding that Walt solely benefited from the repayment of funds, as to the $35,000 Strickland loan and the $60,000 Z Car Garage loan but not the finding as to the repayment of $73,500 received by the community via wire transfer in May 2013. Insofar as the trial court included the amount repaid to the community in the section 1101 remedy, the court abused its discretion by reimbursing Kimberly for a breach of the fiduciary duty that did not result in impairment to her present undivided one-half interest in the community estate. (§ 1101, subd. (a).) The order for reimbursement of $132,750-which the trial court arrived at by dividing its calculated loan total of $265,500 in half (see, ante, footnote 6)-must therefore be reversed and the total loan amount reduced by the $73,500 previously recovered as a community asset.
To further clarify, the trial court's calculated total of $265,500 of loans made in breach of Walt's fiduciary duty erroneously included $73,500 that had previously been repaid to the community. To correct the error, the trial court must deduct that amount ($73,500) from the total loan amount ($265,500) before dividing the resulting amount in half to determine Walt's reimbursement to Kimberly for his impairment of her present undivided one-half interest in the community estate. (§ 1101, subd. (a).)
Nevertheless, we reject Walt's contention that the trial court erred in ordering reimbursement for those loans which were not repaid due to the unrelated default of the third-party borrower. In contrast with the $73,500 that was indisputably repaid to the community for the parties' mutual benefit, the loan amounts lost to default remained a loss to the community at the time of separation and equally so at the time of the division of assets. Their default "resulted in a community debt impacting [Kimberly]'s present interest in the community estate." (Schleich, supra, 8 Cal.App.5th at p. 282 [discussing Fossum].) The trial court was therefore within its discretion to award Kimberly reimbursement for her community interest in the loans that Walt made in breach of his fiduciary duty to her and which had not been repaid, thus diminishing her present undivided one-half interest in the community estate. (§ 1101, subd. (a).) Walt's other assertions, including that he had authority to make the loans in question and that the loss to the community estate due to the default in repayment was not caused by his breach of fiduciary duty, are without merit.
III. DISPOSITION
The July 26, 2019 judgment (styled as "Findings and Orders After Hearing/Decision") is reversed and remanded for the trial court to (1) strike the order granting $62,187.50 in reimbursement for the community share of Walt's personal hobby expenses, and (2) reduce the $265,500 total loan amount by $73,500, then order reimbursement of one-half that amount for Kimberley's share of loans made by Walt in breach of his fiduciary duty. The parties shall bear their respective costs on appeal.
WE CONCUR: Bamattre-Manoukian, Acting P.J. Grover, J.