[WSBARP] Watanabe v. Watanabe

Thu May 26 10:31:15 PDT 2022

I finally got around to reading this and since I’m avoiding some other work I thought I would weigh in.

First, I agree with Russell that Watanabe really only addresses the issue of characterization of property in the context of a dissolution proceeding. The basic principle is I think as Jason stated: don’t even bother arguing for a characterization of property based on whose name title is held, because the court is going to look behind the title and determine it to be separate or community based on the source of funds used to acquire it (plus other factors).

That principle probably would be applied in any form of dispute between spouses, but it’s not likely to be extended to a case where a third party is involved. For example, if a creditor has a judgment against a tortfeasor spouse and the spouse’s community, and executes against real property held in both their names “as community property,” I highly doubt the spouses would be allowed to evade the execution on the grounds that the property is “really” separate property of a non-liable spouse.

Second, having once taught a community property class at SU a few years ago and getting deep into the weeds because of it, I appreciate the approach of the Watanabe decision and I’m particularly glad it’s unanimous. Lay people generally have no real grasp of what community property rights mean, because it’s too technical and convoluted and because, as Borghi points out, people shift the nominal title holder of assets all the time for reasons having nothing to do with an intention to recharacterize the property or make a gift to their spouse. It’s an area where real life and the law don’t intersect very well, and Borghi/Watanabe resolves the potential conflict in favor of real life even though it can make things more difficult for divorce lawyers.

The alternative rule to Borghi/Watanabe is the old Creasman presumption that title is presumed to be as the spouses intended to dispose of the property, and Creasman was a fantastically racist and results-oriented opinion (deprive the Black guy of his property in favor of his deceased white wife’s heirs) that was distinguished out of existence as soon as there was any attempt to apply it in non-mixed-race cases. I think the long line of post-Creasman cases straining to avoid its application demonstrates that the simple-to-administer rule, that the names on the paper define characterization, generally results in huge injustices.

Finally, I noticed two things about Watanabe that I thought were a little wonky.

  1.  It misstates the facts in Borghi. The “special warranty deed” in Borghi was not executed from the wife to the wife and husband, as the opinion claims. Before marriage the wife entered into a real estate contract to purchase property. After marriage, the seller under the contract issued its fulfilment deed to wife and husband. 167 Wn.2d at 482. There was “no evidence as to why” it did that, Id. at 489 (even though it seems obvious that the wife probably asked that her husband be included on the deed). I think the distinction as to who is the Grantor is important, because Borghi also states that proper way to convert sp to cp is a quitclaim deed from one spouse to both spouses. Id. at 488-489. (Though, as Watanabe points out, that also is not conclusive if the deed is done to accommodate a lender and extrinsic evidence shows a lack of intent to actually convert sp to cp.)

  1.  The discussion of extrinsic evidence and “objective manifestation” under contract law seems a little out of place. A deed is a conveyance instrument and is not a contract; there is no “mutual acceptance” of a deed that would render an “objective manifestation” relevant, and the grantee spouse is not making any promise or providing consideration...unless of course they are in fact entering into some kind of separate binding contract with each other and the deed is executed pursuant to that contract, which would be an entirely different scenario. I think Watanabe’s final conclusory statement is nevertheless a good rule even if not necessarily on the reasoning of the opinion: “Extrinsic evidence showing a spouse’s intent when signing [a] quitclaim deed may be considered in determining the character of property in a dissolution proceeding.”

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Russell D. Garrett
Sent: Tuesday, April 5, 2022 9:00 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Watanabe v. Watanabe

As Jason suggests, it is worth reading the decision. I’ll take a stab at the question and pose a question and possible answer well beyond the scope of my practice.  I don’t practice in family law and dissolution proceedings.

The court did not interpret the language in the deed “to establish community property” as establishing the intent to recharacterize the property from separate property to community property.  Even if the deed did have language that stated such intent, to recharacterize the separate property to community property, the court would not consider that to be determinative in a dissolution proceeding where the parties to the marriage are the only parties affected by the recharacterization.    The court seems to focus the quoted language on the result of the characterization for purposes outside of a dissolution proceeding.  The court makes two important distinctions in its decision. First the court limits its conclusion that the joint title gift presumption does not apply only in connection with dissolution matters. Second, the court admits extrinsic evidence to show the transferring spouse’s intent for the purpose of “determining the character of property in a dissolution proceeding”.   Accordingly, the actual intent, as distinct from the objective manifestation of intent on the deed, of the transferring spouse is the focus in a dissolution proceeding.  Conversely there is hope that the objective manifestation of intent to recharacterize the property may very well still control outside of dissolution proceedings.   The impact appears to be that whether property is characterized as community or separate under these facts will be determined differently in a dissolution proceeding than outside of a dissolution proceeding.

I would venture to guess that where a dissolution proceeding exists, the trial court will be forced to look beyond the statements in the deed and peer instead into the minds of the parties to the marriage.  In this case, the court addressed only the intent of the transferring spouse and did not address the non-transferring spouse’s subjective or objective belief of the true intent of the transferring spouse.  The court here, for example,  did not address what might have happened if the transferring spouse executed the deed with secret intentions not to recharacterize the property but expressing the opposite to the non-transferring spouse in order to convince the non-transferring spouse to take out a loan for the business only to divorce the non-transferring spouse after the loan was satisfied while asserting that the intent was never to convert the separate property to community property.  Might the actual subjective and secret intentions of the transferring spouse control the characterization of the property transferred by deed from separate property to community property where the non-transferring spouse relies upon the objective believe that the transferring spouse subjectively intended to change the separate property to community property?   Perhaps the subjective intent of the transferring spouse means the property maintains its separate character but misleading nature of the transferring spouse’s behavior or estoppel is applied to the equitable division of assets.  In the end, the decision is clear that it only applies in dissolution proceedings.

Russell D. Garrett  |  Attorney

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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Jason Burnett
Sent: Tuesday, April 5, 2022 9:30 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: [WSBARP] Watanabe v. Watanabe

Mates-

I’ve yet to see a listserve discussion of the Supreme Court’s unanimous opinion in In re Marriage of Watanabe.  https://www.courts.wa.gov/opinions/pdf/1000456.pdf<https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.courts.wa.gov%2Fopinions%2Fpdf%2F1000456.pdf&data=04%7C01%7Cjburnett%40reedlongyearlaw.com%7C01139fcd0e8249f33aca08da142969ef%7Cc42db07999e840ff9b106ba95e2918a6%7C0%7C0%7C637844465340914312%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=Z9z%2F6ffPxm%2F4pfJ1Qm2p1u9Ji7sR3izfALpH2drujNI%3D&reserved=0>  I’m curious to hear the analysis and opinions of my peers.
FACTS
Husband and wife seek a loan to purchase a horse property and offer Wife’s separate real property as security. The bank agreed to make the loan, but only on the condition that Wife add Husband to title of the property offered as security, since Husband had no credit history.  Wife quitclaimed her interest in her separate property to herself and Husband “to establish community property.”

The Supreme Court unanimously affirmed the admission of extrinsic evidence to determine whether Wife “had the intent to gift her separate property to the community.”  According to the Supremes “the inquiry here was not whether there was a valid quitclaim deed but, rather, whether or not Pedersen had the intent to gift her separate property to the community. The extrinsic evidence was not admitted to dispute what the deed actually says, and the title was not altered here. The evidence was used solely to show Pedersen’s intent, which the trial court used to determine the nature of the property.”

It’s a unanimous opinion, so I guess it’s super-obvious to the nine justices who signed it, but it’s a mystery to me how the extrinsic evidence was admitted for any purpose other than contradicting the intent stated in the deed itself: “to establish community property.”  Between Hudesman, Borghi and Watanabe, it feels like Washington courts are pretty far down an interpretive dead-end road when it comes to interpreting the effect of deeds—how can anyone rely on a deed anymore without first contacting the signer and asking them if they intended to do what they said they intended to do in the deed itself?

Jason W. Burnett
Attorney at Law
Reed Longyear Malnati Corwin & Burnett, PLLC
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