Opinion
65179-0-I
02-21-2012
IN RE THE MARRIAGE OF LOIS MARGARET GELMAN, Appellant, v. ERIC NEAL FASSLER, Respondent.
UNPUBLISHED OPINION
SPEARMAN, J.
In this dissolution action involving two physicians, the trial court divided the community property 60/40 in favor of the husband. The wife appeals, arguing that the record is insufficient for review, that the trial court erred in its consideration, valuation, and characterization of certain property, and that the court abused its discretion in failing to award her reimbursement for post-separation expenses incurred on the family residence. We affirm all but one of the court's rulings on the parties' assets and remand with directions to strike the value attributed to the wife's anesthesiology practice, to make any adjustments to the property distribution that the court deems necessary, and to provide reasons for the court's distribution.
FACTS
Eric Fassler and Lois Gelman married in 1986 and separated in 2007.
They had three children, all of whom are now adults. In 2010, following a trial, the superior court entered a decree of dissolution.
At the time of trial, both parties were in their fifties and had practiced medicine for many years. Fassler practiced as a gynecologist, gynecological surgeon, and obstetrician but had stopped working since undergoing treatment for cancer. Gelman had an active practice as an anesthesiologist.
Gelman testified that from 1988 to 1998 she practiced anesthesiology as a partner in Valley Anesthesia Associates, P.L.L.C. (VA). She had to "buy-in" to the practice, working initially as an employee, then a junior partner, and eventually a senior partner. From 1999 until 2009, she had a solo anesthesiology practice with a contract to provide anesthesia services to a surgery center. In 2009, she closed her solo practice and rejoined VA.
Gelman's 2009 employment agreement with VA has no "buy-in" requirement. Instead, it requires VA to sell her an ownership share for one dollar. Gelman must sell the share back for one dollar if and when she leaves VA. The agreement states that Gelman "shall become a Member . . . shall be issued One (1) Unit, and shall have a capital account of $1.00." The agreement also states that as of May 2009, each member of Valley Anesthesia, including Gelman, had one ownership share.
Gelman testified that her employment contract is not guaranteed and she could be terminated at any time. She also testified that VA has an exclusive contract to provide anesthesiology services to Valley Medical Center. Gelman's monthly net income is approximately $22,000.
Evidence established that Gelman inherited between $80,000 and $90,000 in 2002. The inheritance was maintained as an IRA and managed by Fassler until 2007. At that point, the account was worth $157,000. In March 2007, nine months before the parties separated, they cashed out the IRA and put the funds into a preexisting joint investment account that Fassler managed. Gelman testified that the account "had several types of investments" and she believed the IRA proceeds went into stocks. Fassler testified that some of the money went into the children's college savings accounts and the rest was "invested, intermingled with our other investment money." The court characterized the joint account, which was worth $420,916 at the time of trial, as community property.
Fassler testified that his former practice was 30 to 40 percent obstetrics, and 60 to 70 percent gynecology and gynecological surgery. He stopped working when he was diagnosed with a rare and aggressive form of bone cancer. The cancer required highly toxic chemotherapy, which Fassler completed shortly before trial. He also underwent surgery to remove a large tumor and a significant portion of the bone in his dominant arm.
Expert testimony established that Fassler's cancer has "tremendous potential to metastasize" and he has a 45 to 55 percent chance of surviving it. He may not fully recover from some of his chemotherapy side effects, including hearing loss, cognitive impairment, and kidney damage. Given the physical demands of his surgical specialty, it is "quite possible he'll never operate again" and there is a "real likelihood" that he will not retain "the vitality to practice medicine." At the time of trial, Fassler was receiving social security disability and private insurance disability and had a total monthly net income of $11,593. An additional social security benefit paid his child support obligation. If Fassler returns to work, he will lose a percentage of his disability benefits.
Accountant Steven Kessler testified as a joint expert on the value of the parties' practices. Because of Fassler's medical condition, and because he would not receive any payments for his interest in the practice, Kessler concluded his practice had no goodwill or other value. With respect to Gelman's practice, Kessler concluded that VA's exclusive contract was an intangible asset and valued Gelman's interest in it at $112,000. He testified that the exclusive contract creates a restricted marketplace and a relationship that generates income "slightly above what I would term the replacement compensation or benchmark compensation . . . ." To calculate the value of the contract to Gelman, Kessler determined her base future annual income ($375,000), subtracted from the replacement compensation value ($324,075), and calculated after tax excess earnings of $33,611. Using a capitalization rate of 30 percent, he concluded the value of the contract to Gelman was $112,019.
In closing, Gelman's counsel argued that the exclusive contract had no value to Gelman because "[i]f she leaves [VA] she gets nothing" and she is "in effect, an at-will employee" who is "far more analogous to a contract laborer than a professional with goodwill." Fassler's counsel countered that Gelman "is a partner" at VA, that the exclusive contract is an intangible asset owned by VA, and that Gelman therefore benefits from it.
The court awarded Fassler 60 percent ($2,053,085) and Gelman 40 percent ($1,368,743) of the community property. The court offered no oral or written explanation for this division. It expressly adopted Steven Kessler's valuation of Gelman's practice, stating in part: "the court is persuaded that the characterization of Dr. Gelman's business interest in her group practice need not be called 'goodwill' . . . Dr. Gelman has an economic benefit expectancy in contractual rights." Gelman moved for reconsideration on a number of grounds. The court denied the motion. She appeals.
DECISION
The goal of property division in a dissolution action is a just and equitable distribution of the parties' property and liabilities. RCW 26.09.080. "The key to an equitable distribution . . . is not mathematical preciseness, but fairness." In re the Marriage of Clark, 13 Wn.App. 805, 810, 538 P.2d 145 (1975). In dividing the property, the trial court must consider the nature and extent of the community and separate properties, the duration of the marriage, and the economic circumstances of the parties at the time of the dissolution. RCW 26 .09.080. The court should also consider the age, health, physical condition, education and future earning prospects of the parties. Friedlander v. Friedlander, 80 Wn.2d 293, 305, 494 P.2d 208 (1972). The court has broad discretion in this area and will be reversed only upon a showing of manifest abuse of discretion. In re Marriage of Rockwell, 141 Wn.App. 235, 242-43, 170 P.3d 572 (2007). Decisions in dissolution proceedings will "seldom be changed upon appeal . . . The emotional and financial interests affected by such decisions are best served by finality." In re Marriage of Landry, 103 Wn.2d 807, 809-10, 699 P.2d 214 (1985).
Adequacy of Findings
Gelman first contends the trial court's property distribution is unreviewable because it is unexplained. Noting that the court was statutorily required to consider "all relevant factors, " including the nature and extent of the community and separate properties, the duration of the marriage, and the economic circumstances of the parties, she contends the absence of findings mentioning the statutory factors or explaining the court's distribution, leaves this court unable to determine whether the court fulfilled its obligation or properly exercised its discretion.
We conclude that the record is sufficient to review the court's consideration of the statutory factors. Neither RCW 26.09.080 nor the caselaw require formal findings on the statutory factors, but it must be evident from the record that the trial court considered those factors. In re Marriage of Horner, 151 Wn.2d 884, 895-897, 93 P.3d 124 (2004); cf. In re Marriage of Croley, 91 Wn.2d 288, 588 P.2d 738 (1978); In re Marriage of Steadman, 63 Wn.App. 523, 526, 821 P.2d 59 (1991); In re Marriage of Murray, 28 Wn.App. 187, 189-90, 622 P.2d 1288 (1981). In this case, the findings and the record are sufficient to infer the court's consideration of the statutory factors. The findings demonstrate the length of the marriage and assign values to the assets and liabilities. The court adopted child support worksheets showing the parties' income. Those worksheets constitute findings of fact reflecting the parties' economic circumstances. In re Marriage of Daubert and Johnson, 124 Wn.App. 483, 492, 99 P.3d 401 (2004). In addition, it is clear from closing arguments and the parties' extensive briefing on reconsideration that the court was made aware of the statutory factors.
We also conclude, however, that the absence of any reasons for the court's disparate distribution hinders our review and necessitates a remand for the court to articulate the basis for its decision. See In re Marriage of Urbana, 147 Wn.App. 1, 195 P.3d 959 (2008) (where court divided property 20 percent to husband and 80 percent to wife, court abused its discretion by not stating the basis of its property division); cf Lawrence v. Lawrence, 105 Wn.App. 683, 686, 20 P.3d 972 (2001) (remanding because "the basis for the trial court's decision to award custody to the father is not clear from the record"); Connell v. Francisco, 74 Wn.App. 306, 317, 872 P.2d 1150 (1994) (remanding for court to articulate basis for distribution where great disparity existed in economic circumstances of couple in meretricious relationship). Because the other issues on appeal involve the trial court's treatment of significant assets, we elect to reach those issues so that the court on remand will have the correct status of all the property in mind when it articulates the reasons for its distribution.
Value of Anesthesiology Practice
Gelman contends the court erred in concluding that her anesthesiology practice had a value of $112,000 due to the contract between VA and the hospital. She argues that the contract is neither goodwill nor an asset separate and apart from her future earning capacity. She concludes, therefore, that the court erred as a matter of law in assigning any value to her practice. Fassler agrees that the contract is not goodwill per se, but argues that it is an intangible asset that was properly valued by the court. We need not decide whether the contract is an intangible asset of VA because even assuming it is, the record fails to establish that Gelman will realize any benefit from that asset over and above her earning capacity.
For purposes of property distribution, Washington courts distinguish between a professional's earning capacity, which is a relevant factor but not distributable property, and intangible assets like goodwill, which are distributable property. In re Marriage of Hall, 103 Wn.2d 236, 238-48, 692 P.2d 175 (1984). The courts have also held that when an intangible asset attaches to a business, it is distributable in a dissolution proceeding only if one of the parties has an ownership interest in the business. See Id., 103 Wn.2d at 241-42 (salaried professional who has no ownership interest in the entity which employs him or her can have no professional goodwill); In re Marriage of Sedlock, 69 Wn.App. 484, 495, 849 P.2d 1243 (1993) (CPA husband acquired no goodwill before he acquired ownership interest in practice); Gilman v. Holman, 725 N.E.2d 425 (Ind.App. 2000) (citing Hall and holding that salaried doctor with no ownership interest in clinic would receive no distribution of value for the clinic if his employment terminated, could take no goodwill with him if he left, and therefore had no interest in the clinic's enterprise goodwill).
In this case, the exclusive contract is an intangible asset of VA. The asset is therefore distributable property only if Gelman has an ownership interest in VA. While the record establishes that she is a "senior partner" and shareholder in VA, her employment agreement provides that she receives only one dollar for her share when her employment ends. Nothing in the record demonstrates that Gelman is an equity partner in VA. Accordingly, it was error to find that she had any valuable interest in VA's exclusive contract.
Accounts Receivable from Gelman's Solo Practice
Gelman contends the court erred in awarding her $138,306 in accounts receivable from her solo practice. She contends the receivables were not distributable property because they "had long been collected and no longer existed as an asset" at the time of trial. She cites In re Marriage of Kaseburg, 126 Wn.App. 546, 561, 103 P.3d 1278 (2005) for the proposition that "[t]he court cannot distribute an asset that no longer exists." While that is the general rule, courts have discretion to value assets that exist at the time of separation. See Koher v. Morgan, 93 Wn.App. 398, 404, 968 P.2d 920 (1998); (court has broad discretion in determining the valuation date for an asset); In re Marriage of Griswold, 112 Wn.App. 333, 349, 48 P.3d 1018 (2002) (court did not abuse its discretion in valuing ring wife sold before trial). Here, the trial court had discretion to value the accounts receivable because they existed at the time of the parties' separation.
Gelman argues in her reply brief that the court erred in awarding her the accounts because she used them to maintain the marital residence. Citing In re Marriage of White, 105 Wn.App. 545, 20 P.3d 481 (2001), she contends a court cannot distribute a cash asset that has been used to maintain, and has therefore merged into, other assets distributed by the court. We need not consider this argument because it is raised for the first time in Gelman's reply brief, and for the first time on appeal. RAP 2.5(a); Espinoza v. City of Everett, 87 Wn.App. 857, 872–73, 943 P.2d 387 (1997); Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992).
Gelman argued below that the receivables should not be valued separately because they were used in her business and were thus already included in the valuation of her practice. She did not argue, as she does now, that the receivables should not be valued separately because they were used to maintain the family residence.
We note that Gelman's supporting authority is distinguishable. In White, 105 Wn. App at 552, the court held that separate property used to pay the family's mortgage merged into that asset and could not be awarded as a separate asset at dissolution. But the mortgage payments in White were made prior to the parties' separation. Here, the accounts receivable still existed at the time of separation and were allegedly spent on the parties' residence post-separation.
Characterization of Gelman's Inheritance
Gelman next contends the court mischaracterized her inheritance as community property. We disagree.
Initially, Gelman's inheritance was separate property. White, 105 Wn.App. 545 (assets are separate property if acquired during marriage by inheritance); RCW 26.16.010, .020. But a party loses the benefit of any separate property presumption and assumes the burden of proving the separate character of property when they put it "into an account where it [is] commingled with community funds." In re Marriage of Skarbek, 100 Wn.App. 444, 449, 997 P.2d 447 (2000). The party claiming separate funds must clearly and convincingly trace them to a separate source. Id. Gelman did not meet this burden.
Gelman's reliance on In re Estate of Borghi, 167 Wn.2d 480, 219 P.3d 932 (2009) is misplaced. Borghi involved the effect of a change in title on the separate or community character of real property. It did not address the effect of commingling on the character of liquid assets.
It is undisputed that prior to separation, the parties deposited the inheritance funds into a joint investment account containing community funds. Gelman argued below that she had sufficiently traced the inheritance by showing that it was put into this account during the year of separation. But tracing requires a showing that separate funds remain separately identifiable after they are commingled with community property. Gelman did not even attempt to make such a showing below. As Fassler's counsel correctly pointed out in closing argument, "you don't get to trace up to a point and then stop. You have to trace it. They put it into an account. It went into certain stocks. Those stocks could not be identified. Dr. Gelman said she did not know where the money went." Gelman simply did not sufficiently trace her inheritance. Compare Skarbek, 100 Wn.App. at 449-50 (sufficient tracing where husband "exhaustively" documented the details of the bank account activity, thus "tracing . . . $46,000 as continuously separate property."). Absent adequate tracing, the law favors characterization of property as community property. In re Marriage of Brewer, 137 Wn.2d 756, 766-67, 976 P.2d 102 (1999); In re Marriage of Chumbley, 150 Wn.2d 1, 5, 74 P.3d 129 (2003).
For the first time in her reply brief, Gelman argues that the evidence only established "intermingling, " and therefore the court erred in treating the entire fund as community property. We need not consider this argument. Cowiche Canyon Conservancy, 118 Wn.2d at 809.
Contributions to Family Residence During Separation
Last, Gelman contends the court abused its discretion in awarding Fassler 60 percent of the family residence proceeds when she made disproportionate contributions to the residence between separation and trial. She alleges she contributed "at least several hundred thousand dollars . . . for which she received no reimbursement or lien." Fassler counters that when the rental value of the residence is considered, Gelman spent only $67,000 more in mortgage payments than he did. He argues that reimbursement is completely discretionary, that the disparity in contributions to the residence is "more than made up for by Gelman's far superior earning capacity, " and that the court was well within its discretion in not awarding her any reimbursement. We agree with Fassler.
While inequities in the parties' living situations pending dissolution may be taken into account in property division, this is only one of many factors that must be analyzed in making a just and equitable distribution. See Miracle v. Miracle, 101 Wn.2d 137, 139, 675 P.2d 1229 (1984) ("The trial court must take into account all the circumstances in deciding whether a right to reimbursement has arisen. The trial court may impose an equitable lien to protect the reimbursement right when the circumstances require it."). Thus, whether to make an adjustment to the property division or order reimbursement due to the parties' living situations is discretionary. Id. See also White, 105 Wn.App. at 553-54. And contrary to Gelman's assertions, the court in this case could consider the rental value of the home to her in deciding whether reimbursement was warranted. See Lindemann v. Lindemann, 92 Wn.App. 64, 78, 960 P.2d 966 (1998).
Under all the circumstances, including Fassler's health, the parties' disparate income and future earning capacities, and the court's discretion to consider the rental value of the residence, we cannot say the court abused its discretion in declining to reimburse Gelman for post-separation expenditures on the family residence.
We affirm in part but remand with directions to strike the $112,000 value attributed to Gelman's practice, to make any adjustments to the property distribution that the court deems necessary, and to provide reasons for the court's distribution.