Serving Two Masters: Expenditure of Community Labor and Assets on Separate Property in Washington

The marital community in Washington is entitled to all property which is not separate property. Foremost among the rights of the community is the right to share equally in financial gains produced from the use of community funds or the labor or talent of either spouse. On the other hand, both husband and wife’ are entitled to own and manage separate property, and are also entitled to the rents, issues and profits derived from his or her sepa- rate property. From this dichotomy’ arises the troublesome problem of apportioning assets when a spouse devotes time or labor (both community assets) to the separate property of either spouse. The courts have developed a theory of reimbursement designed to compensate the community when its assets have been expended on separate property. In Washington, the theory of reimbursement has been very slow to unfold, and the language of the courts over the years has been inconsistent and imprecise. Until now, the two principal views have been that the community has either an “equitable lien” or a “right to reimbursement” protected by an equitable lien.” The difference between the concepts has not been readily distinguished by Washington courts: A right of reimbursement imposes a duty to repay a debt, while an equitable lien limits the recovery of a debt to specific property. With a right to reimbursement, the duty to repay exists regardless of what happens to specific property; with an equitable lien the duty to repay depends on the value of the property itself.

The recent case of In re Marriage of Elam has taken a major stride in clarifying the exact nature and extent of the community’s interest. In Elam, the Washington court recognized for the first time that the right of the community includes not only a share in the increase in value attributable to community contributions, but also “a share of the increase in value due to inflation in proportion to the value of community contributions to the property.” Elam goes beyond simple reimbursement and ties the amount of recovery to the value of the property itself, thus giving the community a true equitable lien.

Elam was a marriage dissolution where the main point of contention was the family residence, which had been purchased by the wife for $7,500 prior to marriage. Improvements to the house before marriage doubled the value to $15,000. During marriage, the community placed improvements worth $5,500 on the property, increasing the value to $20,500. At the time of trial the house was valued at $34,000. The increase in value from $20,500 was due to inflation. The court held that the community’s interest after the improvements should be valued at $5,500, and that fifty percent of this amount, or $2,750, represented the husband’s share of the community contribution. The court then held that the husband was also entitled to a pro rata share of the increase due to inflation.

The formula of apportionment used by Elam was essentially quite simple, probably because the facts of the case were very basic. However, apportionment itself, while theoretically simple, often becomes extremely complicated when applied to the facts of a given situation.The rights elicited by Elam should further complicate the problems of apportionment.

This comment will examine the Spanish and California origins of Washington community property law and the development of the right of reimbursement and equitable lien in Washington. It will then analyze the projected impact that Elam should have upon community property law in apportioning between separate and community estates. Finally, it will explore the need for consistency in the present law and for a workable, predictable method of apportionment.

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Martin Gales, Serving Two Masters: Expenditure of Community Labor and Assets on Separate Property in Washington, 19 Gonz. L. Rev. 519 (1983).

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