Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BD395377 John Sandoz, Judge.
Greines, Martin, Stein & Richland and Marc J. Poster; Browne Woods George and Eric M. George for Appellant.
Freid and Goldsman and Gary J. Cohen for Respondent.
CHAVEZ, J.
Appellant Peter Ross (husband) appeals from a judgment of dissolution of his marriage to respondent Claudia Ross (wife). Husband contends the judgment must be reversed because the trial court erred by overvaluing the goodwill associated with husband’s law practice and by awarding wife permanent spousal support of $14,000 per month. Husband further contends the trial court erred by allocating to the community $28,600 of a retirement account husband opened in 2003, and by allocating to him a $300,000 settlement of a sexual harassment claim funded by community assets and a $101,785 debt incurred by the community for a remodeling project that was never undertaken. We affirm the judgment.
BACKGROUND
Husband graduated from law school in 1983. He joined the law firm of Browne & Woods LLP in 1985 and became a partner of that firm in December 1990. Husband and wife married in August 1991 and have two children together. They separated on September 19, 2003, after 12 years of marriage. Wife filed this action to dissolve the marriage several days later.
During the trial, both parties presented the testimony and reports of valuation experts. Both experts performed their calculations based on year end 2003 financial information because it was the year end closest to the September 2003 date of separation. Both experts also used the capitalization of excess earnings method to calculate the goodwill value of husband’s law practice. The only significant differences between the two experts’ valuations were (1) the time period used to calculate husband’s income, and (2) the inclusion of husband’s capital account in the valuation. Wife’s expert, David Blumenthal (Blumenthal), used husband’s 2003 earnings as most representative of his earning power at the end of the marriage and valued the community interest in husband’s law practice at $1,205,767. Husband’s expert, William Scott Mowrey, Jr. (Mowrey), used husband’s average earnings over a five-year period and calculated a range of values for the community interest in husband’s law practice from $205,678 to $472,789. Mowrey valued husband’s capital account at $456,388 and opined that the value of the law practice should not include the capital account because the partnership agreement did not permit husband to take the capital account upon withdrawal or retirement. Blumenthal included the capital account in his valuation.
By our own motion, we augment the record to include Mowrey’s valuation analysis. (Cal. Rules of Court, rule 8.155(a).)
The trial court entered a judgment of dissolution (status only) on January 10, 2006. After an eight-day trial, the trial court issued a memorandum of tentative decision on September 17, 2007, awarding wife spousal support in the sum of $14,000 per month. The trial court valued husband’s interest in his law practice at $940,634, including the value of his capital account. The trial court found that during the marriage, the parties had an annual income of $760,000, and that after separation, husband’s income increased to more than $1 million per year. On October 2, 2007, husband requested a statement of decision on certain matters.
On November 15, 2007, a separate hearing was held on the issue of attorney fees. On December 4, 2007, the trial court issued its general statement of decision, and on January 24, 2008, the court issued an order and statement of decision regarding attorney fees requiring husband to pay wife’s attorneys $175,000.
Judgment was entered on May 2, 2008. This appeal followed.
DISCUSSION
I. Goodwill Value of Law Practice
The trial court valued husband’s interest in his law firm at $940,634 including the value of his capital account. The trial court stated that it “utilized” the calculations prepared by wife’s expert, Blumenthal, to determine the goodwill value of husband’s law practice. Blumenthal used the “excess earnings” method to calculate goodwill value.
Capitalization of excess earnings is one recognized method for valuing goodwill associated with a business for purposes of marriage dissolution. (In re Marriage of Ackerman (2006) 146 Cal.App.4th 191, 200.) “Pursuant to this method, one first determines a practitioner’s average annual net earnings (before income taxes) by reference to any period that seems reasonably illustrative of the current rate of earnings. One then determines the annual salary of a typical salaried employee who has had experience commensurate with the spouse who is the... practitioner.... Next, one deducts from the average net pretax earnings of the business or practice a ‘fair return’ on the net tangible assets used by the business. Then, one determines the ‘excess earnings’ by subtracting the annual salary of the average salaried person from the average net pretax earnings of the business or practice remaining after deducting a fair return on tangible assets. Finally, one capitalizes the excess earnings over a period of years by multiplying it by a factor equal to a specific period of years, discounted to reflect present value of the excess earnings over that period. The period varies according to factors such as the type of business, its stability, and its earnings trend.” (In re Marriage of Garrity and Bishton (1986) 181 Cal.App.3d 675, 688, fn. 14.)
“The excess earnings method is not the only measure of goodwill value. Goodwill value may be measured by ‘any legitimate method of evaluation that measures its present value by taking into account some past result, ’ so long as the evidence ‘legitimately establishes value.’ [Citation.]” (In re Marriage of Rosen (2002) 105 Cal.App.4th 808, 819.)
Husband contends the trial court erred by relying on Blumenthal’s flawed application of the excess earnings method for calculating goodwill. He argues that Blumenthal erroneously based his goodwill valuation on earnings from a single year – 2003 – that was not representative of earnings during the last five years of the parties’ marriage. Husband claims that his earnings fluctuated widely during this period and that the trial court’s failure to use average earnings in determining goodwill was reversible error.
The trial court’s valuation of a community asset is a factual determination that an appellate court reviews under the substantial evidence standard. (In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 670.) Under this standard, all issues of credibility and all conflicts in the evidence must be resolved in support of the judgment. (Ibid.)
Husband contends the trial court’s $940,634 valuation of his law practice “must have” included goodwill valued at $640,415. This contention is premised on the assumption that the court included in its calculation the $456,452 in husband’s capital account in 2003 and that the court deducted $156,233 as the value of husband’s pre marriage, separate property interest in his law practice. There is nothing in the record to support this contention or the assumptions on which they are based. The statement of decision does not specify the value of the capital account used by the trial court in its valuation of husband’s law practice, nor does it indicate that the court deducted from its calculation the value of husband’s separate property interest in the practice. Husband’s assertion that the trial court valued the goodwill of his law practice at $640,415 is thus unsupported.
Also unsupported is husband’s contention that the trial court used only 2003 earnings to determine the goodwill value of his law practice. Although wife’s expert, Blumenthal, used only 2003 earnings to calculate goodwill value, and the trial court stated that it “utilized” Blumenthal’s calculations, it is evident that the court did not adopt Blumenthal’s calculations in their entirety. The trial court’s valuation of husband’s law practice was $265,133 less than Blumenthal’s. The statement of decision does not state that the trial court used only a single year of earnings to value goodwill.
In re Marriage of Rosen, supra, 105 Cal.App.4th 808, on which husband relies as support for the argument that the trial court erred by using only a single year of earnings, rather than average earnings over a period of years to determine the goodwill value of his law practice, is thus inapposite.
Husband’s own calculations of potential goodwill values demonstrate that substantial evidence exists to support the trial court’s valuation. For example, husband calculates a goodwill value of $596,924, using average income from the two years preceding the parties’ separation, and a value of $545,921, using a three-year average. Adding to these figures the approximately $456,000 in husband’s 2003 capital account yields a total value for his law practice of $1,052,924 and $1,001,921, respectively, both of which exceed the $940,634 value found by the trial court. Substantial evidence supports the trial court’s valuation of husband’s law practice.
These calculations, based on average earnings over varying periods of time, are set forth in husband’s appellate brief.
II. Inclusion of Capital Account in Valuing the Law Practice
Husband contends the trial court erred by including his capital account in the value of his law practice because the evidence showed that he had no interest in the capital account. Husband contends in the alternative that if his capital account is included in the value of his law practice at the end of the marriage, then the pre-marriage value of the capital account should be deducted.
In its statement of decision, the trial court stated that it included husband’s capital account in the value of his law practice because the funds in the capital account were available to husband as long as he continues with the firm. Substantial evidence supports that determination. Husband’s partnership K-1 schedules show that in 2000 and 2002, he received distributions from his law firm in an amount that exceeded his share of the firm’s income. Husband’s capital account for those years was reduced by the amount of the excess distributions, resulting in a negative balance at the end of 2002. The K-1 schedules also show that in 2003, husband received partnership distributions in an amount substantially less than his share of the firm’s income and his capital account at the end of 2003 increased by the amount of the difference between his income and distributions for that year. Substantial evidence supports the trial court’s determination that funds in husband’s capital account are available to him so long as he continues with the law firm. The trial court did not err by including husband’s capital account in valuing husband’s interest in his law firm.
Husband contends the trial court’s determination concerning his access to the funds in his capital account was based on inadmissible fact testimony by an expert, Blumenthal, who had no personal knowledge concerning the account. “Unlike a layperson, whose testimony must be based on personal knowledge (Evid. Code, § 702, subd. (a)), an expert may base his opinion on any matter made known to him at or before the hearing, provided only that the facts are of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject. (Evid. Code, § 801, subd. (b), see also Cal. Law Revision Com. com. to Evid. Code, §§ 801, 802, 29B West’s Ann. Evid. Code (1966 ed.) pp. 389-391, 438-439.)” (Kennemur v. State of California (1982) 133 Cal.App.3d 907, 923.) Blumenthal’s opinions were properly based on his review of husband’s K-1 schedules, which show a direct correlation between husband’s capital account and monies distributed to him by the law firm.
Husband argues that the trial court’s determination conflicts with other evidence, specifically, the terms of his partnership agreement and the testimony of his law firm’s managing partner, which showed he had no right to any of the funds in his capital account. It is not the role of an appellate court, however, to reweigh the evidence. Under the substantial evidence standard, all conflicts in the evidence must be resolved in favor of the judgment. (In re Marriage of Friedman (2002) 100 Cal.App.4th 65, 71.) Moreover, the partnership agreement did not deprive husband of a present possessory interest in his capital account. It only addressed husband’s rights upon his withdrawal from the partnership. The trial court determined the value of husband’s interest in the partnership, not his contractual withdrawal rights, and the court properly valued the partnership interest as a going concern. (In re Marriage of Slater (1979) 100 Cal.App.3d 241, 245-246 [trial court could disregard terms of partnership agreement that provided for forfeiture of goodwill upon partner’s withdrawal because “the asset being divided in the [divorce] proceeding was husband’s interest in the partnership, not his contractual withdrawal rights”].)
Husband contends that if the value of his capital account at the end of the marriage is included in the value of his law practice, then the pre-marriage value of his capital account must be deducted. He claims that the amount of the deduction should be $275,000, which includes his expert’s valuation of the capital account in 1991, plus interest. The record discloses scant evidentiary basis to support husband’s claim. Husband made no capital contribution to his law firm when he was admitted as a partner in 1991, and there are no partnership documents showing the value of husband’s capital account in 1991. Husband’s expert acknowledged that he lacked any documentation concerning the pre-marriage value of husband’s capital account and admitted that the value he assigned to the capital account in 1991 was based on a ratio between the capital account value in 2003 and his own calculation of goodwill value at the end of the marriage. Wife’s expert testified that when there is no documentation for a date of marriage value, he customarily assumes that value to be zero. Under the applicable standard of review, the conflicting expert testimony must be resolved in favor of the judgment.
III. Spousal Support Award
In awarding spousal support, the trial court must consider the factors set forth in Family Code section 4320. (In re Marriage of Kerr (1999) 77 Cal.App.4th 87 (Kerr).) The first of these factors, set forth in subdivision (a) of the statute, is “[t]he extent to which the earning capacity of each party is sufficient to maintain the standard of living established during the marriage, taking into account... (1) The marketable skills of the supported party; the job market for those skills; the time and expenses required for the supported party to acquire the appropriate education or training to develop those skills; and the possible need for retraining or education to acquire other, more marketable skills or employment[, and] (2) The extent to which the supported party’s present or future earning capacity is impaired by periods of unemployment that were incurred during the marriage to permit the supported party to devote time to domestic duties.” (Fam. Code, § 4320, subd. (a).) Once the trial court has considered these factors, “the ultimate decision as to amount and duration of spousal support rests within its broad discretion and will not be reversed on appeal absent an abuse of that discretion. [Citation.] ‘Because trial courts have such broad discretion, appellate courts must act with cautious judicial restraint in reviewing these orders.’ [Citation.]” (Kerr, supra, at p. 93.)
Family Code section 4320 lists the other factors to be considered by the trial court in awarding spousal support as: “(b) The extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party. [¶] (c) The ability of the supporting party to pay spousal support, taking into account the supporting party’s earning capacity, earned and unearned income, assets, and standard of living. [¶] (d) The needs of each party based on the standard of living established during the marriage. [¶] (e) The obligations and assets, including the separate property, of each party. [¶] (f) The duration of the marriage. [¶] (g) The ability of the supported party to engage in gainful employment without unduly interfering with the interests of dependent children in the custody of the party. [¶] (h) The age and health of the parties. [¶] (i) Documented evidence of any history of domestic violence, as defined in Section 6211, between the parties, including, but not limited to, consideration of emotional distress resulting from domestic violence perpetrated against the supported party by the supporting party, and consideration of any history of violence against the supporting party by the supported party. [¶] (j) The immediate and specific tax consequences to each party. [¶] (k) The balance of the hardships to each party. [¶] (l) The goal that the supported party shall be self-supporting within a reasonable period of time. Except in the case of a marriage of long duration as described in Section 4336, a ‘reasonable period of time’ for purposes of this section generally shall be one-half the length of the marriage. However, nothing in this section is intended to limit the court’s discretion to order support for a greater or lesser length of time, based on any of the other factors listed in this section, Section 4336, and the circumstances of the parties. [¶] (m) The criminal conviction of an abusive spouse shall be considered in making a reduction or elimination of a spousal support award in accordance with Section 4325. [¶] (n) Any other factors the court determines are just and equitable.”
Husband’s sole basis for challenging the trial court’s $14,000 per month spousal support award is the trial court’s finding that the parties had an income of approximately $760,000 per year. Husband contends there is no evidence to support that finding and that there is no other evidence to counterbalance the trial court’s alleged error.
Substantial evidence supports the spousal support award. There was evidence that husband’s average monthly cash flow for the nine months ended September 30, 2006, consisting primarily of distributions from his law firm, was $130,094. Wife’s income and expense declaration lists monthly expenses totaling $22,300 and no current source of income apart from husband’s earnings. Health problems affecting wife’s knee and back curtailed her previous career as a dancer and a dance instructor. She had not worked since 1995. The record discloses no abuse of discretion with regard to the $14,000 monthly spousal support award.
IV. $300,000 Settlement of Sexual Harassment Claim
The trial court found that prior to separation husband used $300,000 of community funds to settle a sexual harassment claim against him without wife’s knowledge or consent. The trial court allocated the $300,000 settlement to husband as his separate property. Husband disputes that allocation. “Appellate review of a trial court’s finding that a particular item is separate or community property is limited to a determination of whether any substantial evidence supports the finding. [Citations.]” (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 849.)
Family Code section 721 describes the fiduciary relationship between spouses in dealings involving community property. It provides in relevant part: “[I]n transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to... [a]ccounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.” (Fam. Code, § 721, subd. (b)(3).)
In 2003, husband’s former secretary threatened to sue him and his law firm for sexual harassment and discrimination. Husband asked his law firm to reserve $300,000 against his 2002 profits, which he used to settle the claim. Husband does not dispute that he used $300,000 of community funds to settle the sexual harassment claim. He does not dispute that he did not disclose to wife the existence of the sexual harassment claim against him, or that wife never consented to the use of community funds to settle the claim. Substantial evidence exists to support a finding that husband breached fiduciary duties owed to wife, and on that basis, to allocate the full amount of the settlement to him as his separate property. Husband’s claim that allocating the entire $300,000 settlement to him is unfair because the community benefitted from the use of pretax dollars to fund the settlement is unsupported. There is no evidence that the community realized any benefit because the settlement was funded by a reserve against husband’s law firm profits.
V. Refinancing Proceeds
During the marriage, the parties borrowed $165,785 to remodel their home. Although the remodeling was never done, only $64,000 remained at the end of the marriage. The parties divided the $64,000, and the trial court charged husband with the $101,785 balance. Husband objects to that allocation.
A trial court’s ruling with regard to the division of community property is reviewed under the abuse of discretion standard. (In re Marriage of Duncan (2001) 90 Cal.App.4th 617, 625.) In addition, because husband requested no statement of decision with regard to the refinancing proceeds, we must assume that the trial court made all findings necessary to sustain the judgment. (In re Marriage of Catalano (1988) 204 Cal.App.3d 543, 548.) Each such implied finding must be upheld if supported by substantial evidence, viewing the evidence in the light most favorable to the prevailing party and “discard contrary evidence as lacking sufficient verity to be accepted by the trier of fact.” (Ibid.)
Husband contends he should not have been charged with the $101,785 in loan proceeds because those funds were expended on community obligations such as the mortgage, school tuition, and food. He provided no evidence, however, apart from his own testimony, to support his contention. It was within the discretion of the trial court to disregard this testimony. (In re Marriage of Catalano, supra, 204 Cal.App.3d at p. 548.) The trial court’s allocation of the loan proceeds was not an abuse of discretion.
VI. 401(k) Funds
The parties separated on September 19, 2003. Husband opened a new 401(k) account in December 2003. At that time the account had a balance of $40,035.44. In the judgment, the trial court allocated to the community $28,600 of the 401(k) account. Husband contends this was error because he funded the plan with his share of his earnings.
Husband’s partner, Mr. Woods, testified that the full extent of a partner’s compensation for any given calendar year is not set by the law firm’s compensation committee until the following calendar year. Mr. Woods further testified that any compensation exceeding a base compensation of $160,000 may be paid to the partner in the following calendar year. The evidence thus showed that some portion of husband’s 2002 earnings was paid to him in 2003. Husband failed to establish that he used only his post-separation earnings to fund the 401(k) account.
The trial judge allocated approximately 71.4 percent of the value of husband’s 401(k) account to the community. This allocation matches the percentage of time the parties lived together in 2003 before they separated on September 19, 2003. Substantial evidence supports the trial court’s allocation.
VII. Interest
Husband contends he is entitled to interest on the amounts the trial court erroneously credited to wife’s side of the ledger in dividing the parties’ assets. Because we find no error in the trial court’s allocation, husband is not entitled to interest.
DISPOSITION
The judgment is affirmed. Wife is awarded her costs on appeal.
We concur: P. J.BOREN, J.ASHMANN-GERST