Opinion
No. 59623-3-I.
September 2, 2008.
Appeal from a judgment of the Superior Court for Whatcom County, No. 03-3-00039-6, Steven J. Mura, J., entered January 25, 2007.
In this dissolution action, the trial court characterized, valued and divided property acquired before and during the marriage. The court also awarded maintenance to supplement the wife's income until she realized a specific property interest. We remand for reconsideration of the duration of maintenance and otherwise affirm.
BACKGROUND
Fred and Marlene Bolster married in November 1980 after living together for approximately two years. They have three children, now grown. Marlene petitioned for dissolution in January 2003.
Fred's father, James Bolster, had acquired considerable wealth and property. Before the marriage, James gifted to Fred certain stocks and an interest in Kauai Kai Associates (KKA), which owns land and time-shares in Kauai.
Simultaneously with the couple's marriage, James created a general partnership, the Roeder Company, by which he and his four children agreed to "pool their respective ownerships in various investments and properties for the purpose of centralizing investment management and obtaining the benefits of expanded capital with which to work." James intended Roeder to be a vehicle for estate planning by which he could transfer property to his four children. It is unclear exactly what property was owned by the partnership, but most of the assets came from James. Fred testified Roeder included "the Bellingham Towers," the Cliff House and the Bull Shed restaurants and their real property, his father's bank stocks in Bellingham National Bank, and possibly some other assets.
Ex. 7(1).
The Roeder partnership agreement excluded the spouses of Fred and his siblings from any interest in the partnership or voice in its management. In December 1980, Marlene acknowledged that Fred's interest in Roeder was his separate property. In 1987, the agreement was amended, and Marlene again acknowledged that Fred's Roeder interest was his separate property.
Fred was employed full time managing his father's properties, including Roeder, until 1991, when he decided to go his own way. Fred testified he exchanged his interest in Roeder for real property at 331 North State Street in Bellingham and an option to purchase the Cliff House and the Bull Shed restaurants. As part of the purchase, Fred assumed an existing bank note of approximately $681,000 and the restaurants' accounts payable. He also executed a promissory note in favor of Bull Shed, Inc. for approximately $418,000. As a condition of Fred's withdrawal from Roeder, Marlene was required to acknowledge that all of the newly acquired assets were Fred's separate property, which she did. She also signed a quitclaim deed to the real property.
The restaurants were owned by Roeder, but the Bolsters formed a new company, Bull Shed, Inc., for purposes of the sale.
Fred formed JFB, Inc. to own and manage the operations of the two restaurants. The Cliff House, which sits on the 331 North State Street property, paid monthly rent to Fred, which he deposited into a community account until he and Marlene were separated. Occasionally Fred borrowed from JFB to pay community expenses. At the time of trial, the loans totaled $219,700.
Between 2001 and 2004, James gifted each of his children a 20 percent interest in another of his companies, Belairco, which owns property and other interests in Maui. The siblings' interests were later converted to ownership of two condominiums each. For legal and tax reasons, Fred has not taken formal title to the two remaining condominiums. They are worth $400,000.
Fred's earnings at time of trial were between $150,000 and 200,000 per year. Marlene is a certified real estate appraiser. She earns approximately $35,000 per year, which could possibly increase to $50,000.
The trial court filed a lengthy and detailed memorandum decision setting forth its findings and property distribution. The court ruled Fred's interest in KKA, valued at $2.9 million, was his separate property, as was his 20 percent share of certain real property adjacent to the Cliff House Restaurant, worth $221,500. The court found that JFB, valued at $1.1 million, was community property. Other community property totaled some $400,000, and Marlene had separate property of $67,000. The court awarded JFB to Fred because it represents his livelihood.
The court determined that splitting the community property and awarding each spouse his and her separate property did not achieve a just and equitable distribution. To offset the award of JFB to Fred and accomplish a fair distribution of the total assets, the court awarded Marlene all the remaining community property, her separate property, and a $1 million interest in KKA, to be paid within five years. This amounted to about 30 percent of the parties' total assets. The court also awarded Marlene monthly maintenance of $3,000 until she realized her interest in KKA. Later, the court accepted the argument that direct distribution to Marlene of an interest in KKA created certain difficulties, and instead awarded her a $1 million judgment due May 1, 2009, to accrue interest at the statutory rate thereafter.
Both parties appeal.
ANALYSIS
In a dissolution action, all property, both community and separate, is before the court for distribution. When distributing the property, the court considers, among other factors, (1) the nature and extent of community property, (2) the nature and extent of separate property, (3) the duration of the marriage, and (4) the economic circumstances of the parties. The court has broad discretion to award all the property brought before it in a just and equitable fashion, and will be reversed only upon a showing of manifest abuse of discretion. A manifest abuse of discretion occurs when the court bases its decision on untenable grounds.
Friedlander v. Friedlander, 80 Wn.2d 293, 305, 494 P.2d 208 (1972); In re Marriage of Griswold, 112 Wn. App. 333, 339, 48 P.3d 1018 (2002).
RCW 26.09.080.
In re Marriage of Brewer, 137 Wn.2d 756, 769, 976 P.2d 102 (1999).
In re Marriage of Muhammad, 153 Wn.2d 795, 803, 108 P.3d 779 (2005).
Income and property acquired during a meretricious relationship is characterized in a similar manner as income and property acquired during marriage. Assets are separate property if acquired during marriage by gift, inheritance, or with the traceable proceeds of separate property.
Connell v. Francisco, 127 Wn.2d 339, 350, 898 P.2d 831 (1995).
RCW 26.16.010, .020; White v. White, 105 Wn. App. 545, 550-51, 20 P.3d 481 (2001).
Where community labor increases the profits or value of separate property, the property's characterization and distribution depends on the particular facts. The nature of the business, the community efforts expended, the compensation the community received, and whether the community separated the income are all relevant factors to consider. If separate property becomes so commingled with community property that it is impossible to distinguish or apportion it, the entire amount becomes community property. The spouse claiming that funds are separate must clearly and convincingly trace them to a separate source.
Hamlin v. Merlino, 44 Wn.2d 851, 858, 272 P.2d 125 (1954).
Id.; In re Marriage of Lindemann, 92 Wn. App. 64, 70, 960 P.2d 966 (1998); Pollock v. Pollock, 7 Wn. App. 394, 398-99, 499 P.2d 231 (1972).
In re Marriage of Shui, 132 Wn. App. 568, 584, 125 P.3d 180 (2005) (quoting In re Marriage of Chumbley, 150 Wn.2d 1, 5-6, 74 P.3d 129 (2003)).
Id.
Agreements to change community property into separate property are enforceable if they fully disclose the amount, character and value of the property involved, and both spouses acted voluntarily and with full knowledge of their rights. A spouse seeking to enforce such an agreement must overcome the presumption of community character with clear and convincing evidence.
In re Marriage of Hadley, 88 Wn.2d 649, 654, 565 P.2d 790 (1977); but see Whitney v. Seattle-First Nat'l Bank, 90 Wn.2d 105, 111, 579 P.2d 937 (1978) (requirement for advice from independent counsel is not absolute).
In re Marriage of Mueller, 140 Wn. App. 498, 504, 167 P.3d 568 (2007), review denied, 163 Wn.2d 1043 (2008).
We review the relevant findings of fact for substantial evidence and the characterization of property de novo. Substantial evidence is a quantum of evidence sufficient to persuade a rational fair-minded person that the premise is true.
In re Marriage of Zier, 136 Wn. App. 40, 45, 147 P.3d 624, 627 (2006).
Thompson v. Hanson, 142 Wn. App. 53, 60, 174 P.3d 120 (2007).
Characterization of JFB
Fred contends the assets of JFB and the real property at 331 North State Street are separate property because he acquired them in exchange for his interest in Roeder, which was a gift from his father, and because Marlene signed separate property acknowledgments for both. The trial court found JFB was community property because the "details of the acquisition and source of Respondent's 1980 interest [in Roeder] is unclear from the record," Fred had contributed significant community labors to the company, and the separate property acknowledgments Marlene signed were unenforceable.
Clerk's Papers at 59.
We agree the separate property acknowledgment Marlene signed in December 1980 is unenforceable because it failed to fully disclose the amount, character or value of the property involved. But this conclusion is beside the point, because James Bolster plainly intended to gift the Roeder interest to Fred alone. At the time Fred acquired his interest in Roeder, it was his separate property.
But the analysis does not end here. Fred managed the company from its inception until he left 11 years later. He therefore contributed significant community labors to the enterprise, and its value apparently increased considerably during that time. When he left Roeder, no appraisals were performed on any of the assets. Nor does the record show that Fred's 11 years of community labor were either fully compensated by his salary, which was between $22,000 and $30,000 per year, or reflected in the value of his interest at the time of the exchange. The court found that Fred's community labors were "what made it possible for him to separate from that company with the assets he took with him." The evidence supports the conclusion that the assets themselves formed some part of the compensation for Fred's labors. At the time of the exchange, therefore, Fred's interest in Roeder had acquired at least some community character.
For example, Fred testified he and his father "picked" a value of $400,000 for the 331 North State Street property, and "how we came up with it, I'm not sure." Report of Proceedings (RP) (May 23, 2006) at 740.
Clerk's Papers at 59; see also RCW 25.05.250 (requiring remaining members of a partnership to compensate a dissociated partner for the value of his partnership interest).
Further, in order to acquire the assets that became JFB, Fred took on more than $1 million in debt. This was community debt, taken on for the benefit of the community. And thereafter, the value of JFB depended upon Fred's community labors. Separate and community property were thus commingled in JFB. The burden is upon the party seeking to establish separate character of marital assets to trace that separate character. The trial court found Fred failed to carry that burden, and we agree.
Sunkidd Venture, Inc. v. Snyder-Entel, 87 Wn. App. 211, 215, 941 P.2d 16 (1997) (debt incurred by either spouse during marriage is presumed to be a community debt; key test is whether, at the time the obligation was entered into, there was a reasonable expectation the community would materially benefit).
Shui, 132 Wn. App. at 584.
Fred points to the separate property agreements and quit claim deed Marlene signed. The court found the acknowledgement Marlene signed in 1980 unenforceable, because it failed to disclose the assets involved or their value, and did not recite that Marlene was advised to obtain independent advice. The court made no specific findings as to the documents Marlene signed at the time of the exchange, but apparently regarded them unenforceable for the same reasons.
Marlene testified she signed the agreement because she was afraid Fred would not be able to leave Roeder if she did not sign. Fred confirmed that if Marlene had not signed, "[t]he deal wouldn't have been done, and I still would have been, stayed in Roeder Company." The agreement recites that the "nature and the values of the Assets and the JFB, Inc. stock [were] disclosed to her," and that Marlene "had the opportunity to consult with counsel of her own choosing." But Marlene testified that she did not know the values involved, how much Fred paid for the restaurants, or the amount of debt he took on, nor did she see the purchase and sale agreements. The documents she saw did not disclose the assets or liabilities of the partnership, nor identify the assets exchanged. The quit claim deed contained no address, only a legal description. Though Fred's father told her she could get an attorney's advice, Marlene did not remember speaking with one. She was not given time to review the documents before she signed them, nor did she receive copies.
RP (May 23, 2006) at 745.
Ex. 7(4)(a), (5)(a).
Fred, relying on a Division Three case, In Re Marriage of Zier, argues the court misapplied the standards established in Friedlander v. Friedlander for prenuptial agreements to the separate property agreements. But In re Marriage of Hadley makes clear the same standards apply. Moreover, both spouses in Zier knew the exact value of the stock they were converting from separate to community property, and there was no hint of coercion. The same is not true here.
136 Wn. App. 40, 147 P.3d 624 (2006).
80 Wn.2d 293, 494 P.2d 208 (1972).
Hadley, 88 Wn.2d at 654 (the principles set forth in Friedlander apply to property status agreements).
Zier, 136 Wn. App. at 48.
Further, the Cliff House rents were deposited into a community account.
Fred commingled community assets to acquire JFB and did not carry his burden of establishing any continuing separate character. The court correctly characterized the property.
Valuation of JFB
Fred next contends the court overvalued JFB because it failed to properly account for a $219,000 shareholder loan.
The valuation of property awarded in a dissolution of marriage is a material and ultimate fact, which we review for substantial evidence. Erroneous valuation of one particular item does not necessarily require reversal of an otherwise fair and equitable distribution of a sizeable estate. The important consideration is whether the overall distribution is fair and equitable.
In re Marriage of Crosetto, 101 Wn. App. 89, 96, 1 P.3d 1180, 1184 (2000) (material and ultimate fact); In re Marriage of Eklund, 143 Wn. App. 207, 212, 177 P.3d 189 (2008) (reviewed for substantial evidence).
In re Marriage of Pilant, 42 Wn. App. 173, 181, 709 P.2d 1241, 246 (1985).
Id.
Both parties' experts agreed that Fred had borrowed $219,700 in shareholder loans from JFB. Fred testified the money was used for community expenses such as college tuition and family trips. Both experts agreed the loans should be accounted for in one of two ways: either (1) as an asset of JFB, mirrored as a liability on the community balance sheet; or (2) netted out so as not to appear in either JFB's or the community's balance sheets. The court accepted the valuation offered by Fred's expert, Alan Knutson, and determined the JFB corporation was worth $309,548. This value included Fred's shareholder loans as a $219,700 receivable. But the court did not assign a corresponding $219,700 liability to the community. This contradicted the testimony of both experts and overvalued the company.
However, the error is insignificant to the fair and equitable distribution of the property. The court awarded Marlene approximately 30 percent of the assets. The error increases the award to Marlene by less than two percent. The court's stated objective (preserving the senior Bolster's estate planning "in a material way" while allowing Marlene to maintain a comparable standard of living) is still accomplished despite the over valuation.
See Clerk's Papers at 63.
Valuation of Belairco
Fred contends his interest is worth $80,000, not $400,000, because his father owns the condominiums and Fred holds only stock. But Fred's father gave all four of his children, including Fred, two Maui condominiums each, essentially in exchange for their Belairco stock. Fred's siblings have already received and sold their units. In a deposition quoted at trial, Fred explained he did not take title to his condominiums right away because of certain legal considerations, but admitted that he would "probably get them." Fred's father testified, "so I think Fred put his, the two units that I gave them into Belairco with the understanding that I would give, I would . . . trade him the units for the stock." This evidence is sufficient to support the court's finding that Fred's Belairco interest is the value of two condominiums, a total of $400,000.
RP (May 23, 2006) at 810 (reading from Fred's deposition, which was not entered as an exhibit).
RP (May 22, 2006) at 606.
Marlene's Separate Assets
Fred contends the court failed to consider separate assets of Marlene's totaling $131,686. He does not cite to the record or explain these assets in any way, and we decline to address his argument. "Passing treatment of an issue or lack of reasoned argument is insufficient to merit judicial consideration."
Palmer v. Jensen, 81 Wn. App. 148, 153, 913 P.2d 413 (1996), remanded on other grounds, 132 Wn.2d 193, 937 P.2d 597 (1997).
Monetary Judgment
Fred challenges the due date of the $1 million judgment, not the judgment itself. He contends the May 1, 2009 due date is an abuse of discretion because he will not realize any portion of his KKA interest by then, and he cannot liquidate his other assets.
No evidence disputes Fred's argument that he will not realize any money from the sale of the KKA time-shares by May 1, 2009. The time-shares expire between May 2009 and July 2014. Under Hawaii law, KKA cannot sell the time-shares before they expire, and Fred, as a minority interest holder, cannot force a realization sale. Further, the land under the time-share expiring in May 2009 is held on a long-term lease expiring in 2009 with a 15 year extension clause.
But as Marlene argues, Fred has other financial resources from which to raise the necessary funds. In addition to KKA, Fred earns between $150,000 and $200,000 annually and also has JFB, the Belairco stock, and other assets. The court did not abuse its discretion when it ordered the judgment payable by May 1, 2009.
Statutory Interest
Fred also contends the court abused its discretion by imposing statutory interest on the $1 million judgment accruing as of the due date because he will be unable to pay the judgment by that time. Marlene cross appeals, contending that interest on the judgment should accrue from the date of the judgment's entry, or January 25, 2007.
Generally judgments must comply with RCW 4.56.110, which requires interest to accrue at a statutorily mandated rate from the date of entry. But in a dissolution proceeding, the court has discretion to reduce or eliminate interest on deferred payments. The court abuses its discretion if it fixes an interest rate below the statutory rate "without setting forth adequate reasons for the reduction."
In re Marriage of Harrington, 85 Wn. App. 613, 630-31, 935 P.2d 1357 (1997).
In re Marriage of Stenshoel, 72 Wn. App. 800, 811-12, 866 P.2d 635 (1993) (quoting Berol v. Berol, 37 Wn.2d 380, 383, 223 P.2d 1055 (1950)).
Harrington, 85 Wn. App. at 631.
Fred, relying on In re Marriage of Young, contends the court should not have imposed any interest because he does not have access to the money required by the judgment. In Young, the court awarded the husband all of a community interest in a company and ordered him to make a series of payments to his wife as compensation. Interest accrued only if the husband's payments were delinquent. The Young court did not abuse its discretion because it considered the financial condition of the company and set forth an adequate reason for not requiring interest: the company's income, which it earned gradually, was the source of the payments.
18 Wn. App. 462, 569 P.2d 70 (1977).
Id. at 464.
Id.
The court here took a similar approach. It considered that Fred could not liquidate his assets instantly, made the judgment payable two and one quarter years hence, and delayed accrual of interest until the payment became delinquent. As in Young, the court's order is not manifestly unreasonable.
Fred also argues the interest award is an abuse of discretion because it provides Marlene with a greater return on her interest in KKA than Fred could ever hope to receive on his interest. Statutory interest compensates one party for losing the ability to use money while it is in the other party's control. Interest on the judgment is not an investment return, and the two are not comparable.
ufer v. Abbott Labs., 154 Wn.2d 530, 552, 114 P.3d 1182 (2005).
Marlene contends interest should begin to accrue from the date judgment is entered, not the date payment is due. She argues the court failed to state an adequate reason for suspending interest in its revised findings or order. But the court's reasoning was clearly stated in its memorandum decision. Considered together, the revised findings and memorandum decision make apparent the court's purpose in deferring interest: to give Fred time and incentive to liquidate assets with which to pay the judgment. There was no abuse of discretion.
Maintenance
A trial court may award maintenance payments in a dissolution proceeding after considering all relevant factors such as need and ability to pay. We review maintenance awards for an abuse of discretion.
RCW 26.09.080; In re Marriage of Mueller, 140 Wn. App. 498, 510, 167 P.3d 568, 574 (2007).
Mueller, 140 Wn. App. at 510.
The court originally awarded Marlene maintenance payments for five years (until 2011) or until she realized her interest in KKA, whichever occurred later. Their purpose was to supplement Marlene's income until she acquired the value of her interest in KKA:
[Maintenance will] allow her to maintain a lifestyle reasonably similar to her pre-dissolution level, until she can access and ultimately control the [KKA] property that has been awarded to her. At that time, she can use that property to provide for her future needs and to supplement her income to the level she desires.
Clerk's Papers at 64.
Upon reconsideration, the court changed Marlene's property award to a judgment rather than an interest in KKA, payable in 2009. But the court ordered the same amount of monthly maintenance, to end five years later in August 2011. Fred contends that given the court's purpose in awarding maintenance, the court abused its discretion by ordering maintenance to continue after payment of the judgment.
Marlene offers numerous justifications for the maintenance award, such as the length of the marriage and Fred's greater earning potential. A court may award maintenance for these reasons, but the record shows the court intended maintenance to supplement Marlene's income until she received her share of the assets awarded. Nothing in the record explains why that premise did not govern after the court accelerated the due date on the major award of assets. We remand for reconsideration of the duration of maintenance.
Attorney Fees
Marlene seeks attorney fees for defending against Fred's appeal based on its frivolous nature, Fred's intransigence, or his greater ability to pay. His appeal was not frivolous and we discern no intransigence. The parties have equivalent abilities to pay. We deny the request for fees.
We remand for reconsideration of the duration of the maintenance award to Marlene. We otherwise affirm.