CHARACTERIZATION OF PROPERTY

Nevada law presumes that all property acquired after marriage is community property. NRS 123.220. The party claiming that an asset acquired after marriage is separate property has the burden to prove the separate nature of the property by clear and convincing evidence. Verheyden v. Verheyden, 104 Nev. 342, 757 P.2d 1328 (1988); Pryor v. Pryor, 103 Nev. 148, 734 P.2d 718 (1987); Burdick v. Pope, 90 Nev. 28, 518 P.2d 146 (1974).  Does a spouse who contributed separate property to the purchase of property held as community property have the right to reimbursement of his/her separate contribution?  If so, does he/she have the right to share in the property's appreciation during marriage? 

Dicta found in footnote 1 of Malmquist v. Malmquist, 106 Nev. 231, 240, 241, 792 P.2d 372 (1990) may be construed as a "yes" in answer to that question.  Not only may the separate contributor get dollar for dollar reimbursement, he/she may also share in any appreciation in the property.

While this case does not involve separate property payments on a community residence, we believe that the formulae should apply both to community contributions to separate property residences and to separate property contributions to community property residences. . . . Instead, we believe that the formulae stated above provide the preferable measure of compensation of separate property for its contributions toward the acquisition of a community residence.

The Malmquist dicta is inapposite to the long standing law of gifting in this state:  Taking title as community property creates a rebuttable presumption of gift of separate contributions to its purchase.  How do we reconcile this deviation of the Supreme Court from existing case law?

The simplest solution is to treat the footnote as mere dicta, carrying no weight as authority as it is an observation of the court, not its holding. 

Another solution is to reconcile the law of gifting with the right of reimbursement.  First, the spouse claiming a separate interest must clearly and convincingly trace his/her separate property contributions.  Second, he/she must then rebut the presumption of gift by clear and convincing evidence.  If he/she can do so, should there be simple dollar for dollar reimbursement, or may the separate contributor receive a pro tanto interest in the appreciated value of the property?  Under Malmquist dicta, he/she should be granted a pro tanto interest.

Under Malmquist dicta, there should be no distinction in Nevada between separate contributions to community property and community contributions to separate property.  After all, in its footnote, the Supreme Court recognized that a rule which is good for the community should also be good for  separate property. 

California has different approach and a vastly different result.  In Bono v. Clark, __Cal.App. 4^th __ (6^th Dist. 2002), the California appellate court held that the expenditure of community funds for improvements to a spouse's separate real property gave his widow the right to recover under the Moore/Marsden rule of apportionment.  Thus, if the improvement did not increase the value of the property, the widow should receive one-half of the community contributions, dollar for dollar.  If the improvement did, in fact, increase the property's value, then the community would receive a pro tanto interest in the property.

This holding recognizes that there is an inherent unfairness in California law: under California Family Code Section 2640, separate contributions to community property get dollar for dollar reimbursement, while community contributions to separate property get to share in the property's gain in value.  As the court stated:

. . . [w]e recognize that our holding creates an apparent anomaly. . . . In effect, it puts community contributions to separate property on a different footing than separate property contributions to community property.  In the latter case, recovery is limited to dollar-for-dollar reimbursement, without interest. . . . Under our holding, by contrast, the investment of community funds entitles the community to share in the separate property's appreciation, even if Œthe fair market value has increased disproportionately to the increase in equity' resulting from the community improvements.