Opinion
F074023
02-06-2018
In re the Marriage of STEVEN J. LASALVIA and JOAN FALASCO LASALVIA. STEVEN J. LASALVIA, Appellant, v. JOAN FALASCO LASALVIA, Respondent.
Law Offices of Russell J. Hanlon and Russell J. Hanlon for Appellant. Law Offices of Katherine E. Donovan and Katherine E. Donovan for Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. FLM45624)
OPINION
APPEAL from a judgment of the Superior Court of Merced County. Brian L. McCabe, Judge. Law Offices of Russell J. Hanlon and Russell J. Hanlon for Appellant. Law Offices of Katherine E. Donovan and Katherine E. Donovan for Respondent.
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I. INTRODUCTION
Petitioner Steven J. LaSalvia (husband) and respondent Joan Falasco LaSalvia (wife) divorced after 34 years of marriage. Husband appeals from the judgment, challenging the court's distribution of assets and award of permanent spousal support. Husband raised four major issues on appeal. Husband inherited significant ownership in Los Banos Abattoir (LBA), and became chief executive officer (CEO) of the company upon the death of his father in 1986. After a lengthy trial, including opinions from the parties' respective expert witnesses, the trial court found that husband was undercompensated during the marriage by LBA in the amount of $912,000, and provided wife her community interest share of the undercompensated wages. Husband challenges the court's finding that he was undercompensated. He also contends the court erred in finding that he should have received $832,000 in trustee fees for his efforts in managing three trusts that held his family's farming interests and awarding wife her resulting community interest share to the additional fees. Next, husband alleges, and wife concedes, that the trial court made several mathematical errors in dividing the community property assets. Lastly, husband challenges the court's award of $29,500 in monthly permanent spousal support to wife.
The court has rounded monetary amounts to the nearest thousand for the convenience of the reader. Any exact monetary value that is critical to or part of the court's ruling has been left unchanged.
II. BACKGROUND
A. General Facts Regarding Marriage
Husband and wife were married from January 10, 1976, until their separation on May 12, 2010. During the marriage, wife was not employed outside the home, but raised the couple's four children. The couple maintained a high standard of living during the marriage. The family residence was over 5,000 square feet, and they owned a vacation house in Santa Cruz, California. They traveled frequently, both domestically and internationally. As described post, the couple derived income from various business interests and assets.
B. Los Banos Abattoir
Husband's primary employment during the marriage was as CEO of LBA, a slaughterhouse located in Los Banos, California. Husband's father owned and operated LBA starting in 1950. Husband learned how to run and operate the slaughterhouse from his father. Upon graduation from college, husband acquired 50 percent ownership of LBA and started working as vice president of the company. After husband's father died in 1986, the remaining 50 percent of the LBA stock was distributed to husband's family through trusts—28 percent of the stock in a survivor's trust for the benefit of husband's mother and the remaining 22 percent in an exemption trust for the benefit of husband and his sisters. Husband took over as CEO of LBA and remained so throughout the remainder of the marriage. Husband's duties and responsibilities changed upon becoming CEO and records reflect that he was working 16-18 hours a day and doing the work of two men. From 1976 to 2010, LBA's annual sales ranged between $4 to $13 million a year.
C. Husband's Family Trusts
Three trusts were created upon the death of husband's father. Half of his father's estate went into a survivor's trust for the benefit of husband's mother. The survivor's trust consisted of 28 percent of the stock of LBA and interest in several parcels of real property. The other half of the estate went into an exemption trust and a marital deduction trust. The exemption trust contained the remaining 22 percent of the stock of LBA and a 114-acre parcel of farmland referred to as "Lovers Lane." Husband and his sisters were the beneficiaries of the exemption trust. As a trustee, husband oversaw the exchange of the Lover's Lane property for interests in two other properties in 2008. At the time of the exchange in 2008, the Lover's Lane property was valued at $8.9 million. Prior to its sale, the trustees received income from the Lover's Lane property by renting it to Smith Farming, which farmed the property until its sale in 2008.
The assets and management of the marital deduction trust were not challenged in the instant appeal.
Husband served as co-trustee of all three trusts with his mother. The terms of the trusts entitled the trustees to reasonable compensation for all services rendered in administering the trusts. Although husband and his mother were entitled to reasonable administrative fees, husband justified not collecting fees in light of the fact that his sisters were upset that they were not also named as trustees.
D. LaSalvia Enterprises, Inc. and LaS, LLC
Husband and wife started two businesses during their marriage, LaSalvia Enterprises, Inc. (LEI) and LaS, LLC. LEI was formed to process and sell animal byproducts created as a result of the operations of LBA. The sales of the byproducts from LEI benefited husband and wife exclusively as, at the time, husband's mother and sisters had ownership interests in LBA. LEI set up a laboratory to isolate blood serum and obtained rennet from calf blood and gullets. In addition, LEI owned two residential properties, a four-acre ranch and various farming interests. Wife also obtained medical insurance through LEI.
Rennet is used during the cheese-making process to assist in the milk curdling process. LEI sold rennet and gullets to purchasers in Europe.
Husband and wife formed a second business, LaS, LLC, which purchased a 190-acre parcel of land for $1 million. LaS, LLC sold the water rights to the parcel for $778,000. It then sold 120 of the 190 acres and used the profit of the sale to purchase a vacation home in Santa Cruz, California. The remaining 70 acres were owned by Pacheco Partners, a partnership of LaS, LLC and Larry Anderson. However LaS, LLC had a majority 86 percent interest in the partnership.
E. Dissolution Proceedings
Husband filed a petition for dissolution on May 28, 2010. On May 18, 2011, the court ordered husband to pay wife temporary monthly spousal support in the amount of $17,227 a month.
1. First Phase
In a bifurcated trial, the court addressed the issue as to whether a February 12, 1991, agreement entered into by the parties titled "Community Property Declaration" served to transmute husband's separate property interests into community property. However, the court found that the agreement did not contain language that clearly and unambiguously established the intent to change the characterization of husband's ownership in his separate property, and that it could not consider the "abundant" extrinsic evidence of husband's intent to change the character of his separate property business interests. The court, therefore, found the transmutation agreement invalid. There is no challenge to this finding or conclusion on appeal.
2. Second Phase
The second phase of trial was held in November and December 2015, addressing the distribution of assets and payment of permanent spousal support.
a. Stipulations
The parties made several stipulations during the trial. These included stipulating to the value of several parcels of real property. The parties agreed that husband should be reimbursed for certain separate property contributions, and that husband be confirmed with the business interests of LEI and LaS, LLC, subject to the equal division of the sale of real property interests held by the businesses.
Of significant importance to the present appeal, the parties stipulated to use the apportionment approach set forth in Van Camp v. Van Camp (1921) 53 Cal.App. 17, 27-28 (Van Camp) to determine any community property interest in LBA. As described further below, under Van Camp the court is "'to determine the reasonable value of the husband's services ..., allocate that amount as community property, and treat the balance as separate property attributable to the normal earnings of the [separate estate].'" (Beam v. Bank of America (1971) 6 Cal.3d 12, 18 (Beam).) (See stipulations regarding division of community property assets below.)
b. Credibility Findings
At trial, six witnesses appeared before the court including husband, wife and several valuation experts. The trial court noted that it "found the parties' expert witnesses to be credible" despite use of competing methodologies and approaches that led to differing results. As results differed, the court noted that it was required to determine the more reasoned approach based on the facts and circumstances of the case. The trial court also found wife to be a credible witness. However, the court had concerns with husband's testimony. It stated:
"In contrast, the Court did not find Husband always to be a credible witness. Husband in multiple instances was impeached and/or confronted and contradicted by documentary evidence.... Some contradictory evidence was in Husband's own handwriting and stated specific information in direct contradiction to his earlier testimony. This documentation was permitted at trial and Husband's request to exclude at closing argument is denied. Although Husband appeared to give genuine and accurate testimony regarding his youth, father, schooling and apprenticeship in the family businesses, his testimony surrounding and involving many areas related to an asset/issue with monetary implications in this trial, including valuation was not consistent. The inconsistent actions/testimony by Husband draws into serious question the accuracy and veracity of his proffered evidence."
c. Division of Community Property Assets
The trial court systematically discussed the amount and division of the community property assets, most of which is not subject to challenge on appeal. As stipulated by the parties, husband was confirmed the business known as LEI, subject to any and all liabilities, but the remaining assets of the business were to be distributed. In valuing the assets, the court determined that the $99,000 in rennet inventory was in fact worthless based on the lack of an existing market to sell the product and that the value of LEI should be reduced accordingly. However, the parties concede that the trial court failed to account for the reduction in value based on the rennet inventory and made other miscalculations as to the value of LEI. The parties agree that LEI should have been valued at $803,036 (rather than $1,033,500) and that husband's postseparation credit should be $27,259 and wife's postseparation credit should be $77,071. The parties agreed that these corrections should be reflected in the judgment.
The trial court ordered the real property assets of LaS to be sold and the proceeds divided equally among the parties. At the time of the trial court's order, the Santa Cruz property had already been sold for $1.8 million and the court ordered the parties to sell and divide the profits of the farm property held by Pacheco Partners.
During the separation period, wife continued to live in the marital residence while husband moved into a smaller residence. Accordingly, the trial court found that husband was entitled to a reimbursement of $1,750 for the difference in fair market value of rent for the separation period for a total of $126,000. The court did not award wife any credit for payments on her behalf to maintain and repair the family residence during separation. Nor did the court award husband any credit resulting from personal injury proceeds obtained by wife. The parties do not appeal based on these rulings.
The two most contentious findings by the court that are challenged on appeal are that husband was undercompensated $912,000 in wages as CEO of LBA, and that he should have received $832,000 in trustee fees for his services rendered as a trustee of the three family trusts. Husband contends that the trial court erred, and that he was neither undercompensated during his employment at LBA nor was he obligated to receive trustee fees; therefore, husband should not have been required to divide those unpaid wages and fees equally with wife.
d. Permanent Spousal Support
In its order, the court analyzed each of the factors set forth in Family Code section 4320 that, in addition to the marital standard of living, include: "contributions to the supporting spouse's education, training, or career; the supporting spouse's ability to pay; the needs of each party, based on the marital standard of living; the obligations and assets of each party; the duration of the marriage; the opportunity for employment without undue interference with the children's interests; the age and health of the parties; tax consequences; the balance of hardships to the parties; the goal that the supported party be self-supporting within a reasonable period of time; and any other factors deemed just and equitable by the court." (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 303-304, citing Fam. Code, § 4320, former subds. (a)-(l) (Cheriton).)
The court reviewed each of the factors set forth above and determined that wife was entitled to an award of $29,500 a month. This amount reflected the court's finding that, at the time of separation, wife was 63 years old and in poor health. Wife had limited marketable skills and the court found it was unreasonable to expect her to ever become self-supporting; that wife devoted substantial time, energy and effort to support husband and raise four children; that husband was earning an average monthly income of $99,000 and there was no economic hardship in paying spousal support to wife; that the family enjoyed a high standard of living during the marriage; that the community estate was in excess of $7 million and there were few debts; and that wife had multiple, severe medical conditions. Husband contends that the trial court abused its discretion in awarding spousal support, and that wife should be entitled to a permanent spousal support of $10,750 a month.
III. Legal Standards
A. Standard of Review
When assessing the parties' contentions, we begin with the well-established rule that "[a] judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness." (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) We review the trial court's judgment dividing marital property for an abuse of discretion. (In re Marriage of Sivyer-Foley & Foley (2010) 189 Cal.App.4th 521, 526; In re Marriage of Quay (1993) 18 Cal.App.4th 961, 966.) Spousal support orders are also reviewed for abuse of discretion. (In re Marriage of Schleich (2017) 8 Cal.App.5th 267, 276; Cheriton, supra, 92 Cal.App.4th at p. 283.)
Generally, "'the appropriate test of abuse of discretion is whether or not the trial court exceeded the bounds of reason, all of the circumstances before it being considered.'" (In re Marriage of Ackerman (2006) 146 Cal.App.4th 191, 197 (Ackerman); accord, In re Marriage of Connolly (1979) 23 Cal.3d 590, 598.) "'The burden is on the party complaining to establish an abuse of discretion, and unless a clear case of abuse is shown and unless there has been a miscarriage of justice a reviewing court will not substitute its opinion and thereby divest the trial court of its discretionary power.'" (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.) "'"The abuse of discretion standard ... measures whether, given the established evidence, the act of the lower tribunal falls within the permissible range of options set by the legal criteria."' [Citation.] As long as there is a reasonable or even fairly debatable justification for the ruling, we will not set it aside." (Hahn v. Diaz-Barba (2011) 194 Cal.App.4th 1177, 1195.)
The challenged order is also reviewed for legal and factual support. "'As long as the court exercised its discretion along legal lines, its decision will be affirmed on appeal if there is substantial evidence to support it.'" (In re Marriage of Blazer (2009) 176 Cal.App.4th 1438, 1443 (Blazer); accord, In re Marriage of Duncan (2001) 90 Cal.App.4th 617, 625.) "'To the extent that a trial court's exercise of discretion is based on the facts of the case, it will be upheld "as long as its determination is within the range of the evidence presented."'" (Blazer, supra, at p. 1443.)
B. Expert Testimony
On appeal, husband contests the findings and opinions of wife's expert witness. Accordingly, the manner in which we review expert witness testimony and the trial court's ruling regarding the expert's opinions are of significant importance. It is noted that neither party challenges the qualifications of the respective experts or that their testimony was improperly admitted. Instead, husband argues that the opinion of wife's expert witness does not constitute substantial evidence to support the judgment.
"If a witness is testifying as an expert, his testimony in the form of an opinion is limited to such an opinion as is: [¶] (a) Related to a subject that is sufficiently beyond common experience that the opinion of an expert would assist the trier of fact; and [¶] (b) Based on matter (including his special knowledge, skill, experience, training, and education) perceived by or personally known to the witness or made known to him at or before the hearing, whether or not admissible, that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates, unless an expert is precluded by law from using such matter as a basis for his opinion." (Evid. Code, § 801.) Thus, "[a] properly qualified expert may offer an opinion relating to a subject that is beyond common experience, if that expert's opinion will assist the trier of fact." (Bushling v. Fremont Medical Center (2004) 117 Cal.App.4th 493, 510; see Sanchez v. Kern Emergency Medical Transportation Corp. (2017) 8 Cal.App.5th 146, 155.)
The testimony of a single witness, including the testimony of an expert, may be sufficient to constitute substantial evidence. (Wise v. DLA Piper LLP (US) (2013) 220 Cal.App.4th 1180, 1191 (Wise).) However, when an expert bases his or her conclusion on factors that are "'speculative, remote or conjectural,'" or on "'assumptions ... not supported by the record,'" the expert's opinion "'cannot rise to the dignity of substantial evidence'" and a judgment based solely on that opinion "'must be reversed for lack of substantial evidence.'" (Id. at pp. 1191-1192; see Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1135-1136 (Pacific Gas).) Similarly, "'[a]n expert's opinion that assumes an incorrect legal theory cannot constitute substantial evidence.'" (Wise, supra, at p. 1192; Corrales v. Corrales (2011) 198 Cal.App.4th 221, 226.) Finally, matters relied upon by an expert "must provide a reasonable basis for the particular opinion offered." (Lockheed Litigation Cases (2004) 115 Cal.App.4th 558, 564; see Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 770 (Sargon).)
Husband requests that we reject wife's contention that, to the extent wife's expert's opinion is uncontroverted, it should be conclusive and binding on this court. We agree with husband. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 632-633.)
Here, the trial court was presented with opposing expert witnesses who provided different valuations that were, not surprisingly, more favorable to each expert's respective client. Differences between the experts' opinions go to the weight of the evidence. (In re Marriage of Bergman (1985) 168 Cal.App.3d 742, 752.) In the exercise of its broad discretion, the trial court reviews the evidence and "makes an independent determination of value based upon the evidence presented on the factors to be considered and the weight given to each. The trial court is not required to accept the opinion of any expert as to the value of an asset." (Id. at p. 753, fn. omitted.) Generally, "[o]nce it is established that a witness has adequate credentials to qualify as an expert, questions as to the degree of his or her expertise go to weight not admissibility." (Howard Entertainment, Inc. v. Kudrow (2012) 208 Cal.App.4th 1102, 1120-1121.) For example, the fact a witness did not document all work, took some inaccurate notes or deviated from protocol are all matters going to weight, not admissibility. (People v. Cook (2007) 40 Cal.4th 1334, 1346 [addressing scientific testing of blood].) As an appellate court, we are not to second-guess evidentiary assessments regarding the credibility and weight to give to expert opinion. (In re Marriage of Winternitz (2015) 235 Cal.App.4th 644, 653.)
IV. Analysis
A. Valuation of Reasonable Compensation from LBA
Generally speaking, income from one spouse's separate property is separate property, and the intrinsic increase of that separate property is also separate. (Fam. Code, § 770.) At the same time, the fruits of the community's expenditure of time, talent and labor are community property. (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 850-851; see Fam. Code, § 760.) As a result of the latter principle, where one spouse has devoted time, talent and labor to a separate property business during marriage, the community is entitled to receive a share of the profits and increase in value which derive from the spouse's personal efforts. (Beam, supra, 6 Cal.3d at p. 17.) As our Supreme Court has stated: "[L]ong ago our courts recognized that, since income arising from the husband's skill, efforts and industry is community property, the community should receive a fair share of the profits which derive from the husband's devotion of more than minimal time and effort to the handling of his separate property." (Ibid.) The community is entitled to the portion of the profits fairly attributable to the time, talent, and personal effort of the spouse, as distinct from profits attributable to the separate capital of the business. (Ibid.)
"'In regard to earnings, the rule is that where the husband is operating a business which is his separate property, income from such business is allocated to community or separate property in accordance with the extent to which it is allocable to the husband's efforts or his capital investment.'" (Harrold v. Harrold (1954) 43 Cal.2d 77, 80.) Accordingly, "courts must apportion profits derived from community effort to the community, and profits derived from separate capital are apportioned to separate property." (In re Marriage of Dekker, supra, 17 Cal.App.4th at pp. 851-852, fn. omitted.)
California courts generally apply one of two alternative methods to allocate the profits or increased value of a separate property business. As summarized in Beam:
"Over the years our courts have evolved two quite distinct, alternative approaches to allocating earnings between separate and community income in such cases. One method of apportionment, first applied in Pereira v. Pereira (1909) 156 Cal. 1, 7 and commonly referred to as the Pereira approach, 'is to allocate a fair return on the [husband's separate property] investment [as separate income] and to allocate any excess to the community property as arising from the husband's efforts.' [Citation.] The alternative apportionment approach, which traces its derivation to Van Camp[, supra,] 53 Cal.App. [at pp.] 27-28, is 'to determine the reasonable value of the husband's services ..., allocate that amount as community property, and treat the balance as separate property attributable to the normal earnings of the [separate estate].' [Citation.]
"'In making such apportionment between separate and community property our courts have developed no precise criterion or fixed standard, but have endeavored to adopt that yardstick which is most appropriate and equitable in a particular situation ... depending on whether the character of the capital investment in the separate property or the personal activity, ability, and capacity of the spouse is the chief contributing factor in the realization of income and profits [citations] ... [Par.] In applying this principle of apportionment the court is not bound either to adopt a predetermined percentage as a fair return on business capital which is separate property [the Pereira approach] nor need it limit the community interest only to [a] salary fixed as the reward for a spouse's service [the Van Camp method] but may select [whichever] formula will achieve substantial justice between the parties. [Citations.]'" (Beam, supra, 6 Cal.3d at p. 18, fns. omitted.)
The parties stipulated to use the apportionment method set forth in Van Camp to determine any community property interest in LBA and neither party challenges the use of the Van Camp method in this appeal. Rather, husband contends that he was not undercompensated as CEO of LBA and that the trial court abused its discretion in finding that he should have received an additional $912,000 in wages during the marriage. He argues that the trial court abused its discretion in implicitly determining that LBA could afford to pay him an additional $912,000 in compensation because it lacked sufficient working capital and cash. Husband also contends that wife's expert used an unreliable metric on which to base executive compensation by relying on the gross revenues of LBA. We will address each contention in turn.
1. Opinion of Wife's Valuation Expert
Wife retained Michelle Ellis to determine whether husband was adequately compensated by LBA during the marriage. Ellis provided an expert report and testified extensively during trial. Ellis agreed with the stipulated method of determining compensation using the Van Camp approach to determine if husband was undercompensated for his efforts managing LBA during the marriage.
Ellis examined husband's salary from 1976 to 2010 and looked for trends. From 1978 until his father's death in 1986, his salary gradually increased to $40,000 a year. From 1986-1988, during the time that he transitioned to CEO after his father's death, his salary increased to $60,000 a year. From 1989-2002, his salary remained between $100,000-$120,000 a year. Starting in 2003 and throughout the rest of the marital period, his salary quickly increased and stabilized at about $216,000 a year. Comparing husband's salary to Economic Research Institute (ERI) data, Ellis found that husband's stabilized salary from 2003 to 2010 was in line with survey mean salaries and appeared adequate. Ellis used the salary from that period as a benchmark to determine if husband was reasonably compensated for earlier years of employment. Ellis also considered husband's salary as a percentage of the gross revenue of LBA as another indicator to determine whether his salary as CEO was appropriate. During the benchmark salary period, Ellis determined that husband's salary was approximately 2.8 percent of LBA's gross revenue. As husband was not CEO and capable of setting his own salary until 1986, she did not modify his compensation before that time. Ellis found that husband was undercompensated from 1986 to 2002. To make up for the undercompensation of salary, Ellis gradually increased husband's salary roughly two-tenths of 1 percent of the gross revenue per year over the 10-year period from 1987 to 1997 until his salary was based on 2.8 percent of the gross revenue. Based on her calculations, husband was undercompensated $912,172 from 1987 to 2002. Ellis considered the estimate conservative as it did not account for any interest on the undercompensation, which would amount to an additional $1.3 million.
Both parties relied on ERI data to attempt to determine reasonable compensation.
Ellis compared her calculations of the reasonable compensation of husband with ERI survey data of executive salaries and found that the amount of compensation she calculated fell just above the mean value of the ERI survey data. She noted that husband's experts also used ERI survey data, but that husband's expert had used the ERI data for the entire United States and added a 15 percent premium based on the business being located in California. Whereas, Ellis averaged the ERI data from the three closest metropolitan areas—Modesto, Fresno, and Stockton.
She also explained that it was appropriate to use gross rather than net revenue as a metric as she considered gross revenue to be "untainted." Ellis explained that she was not positive that LBA's accounting was done in accordance with generally acceptable accounting principles to arrive at the net revenue, and that as a C-corporation, there would be an incentive to reduce net revenue amounts to minimize taxes. She also testified that a recent seminar she had taken regarding reasonable compensation confirmed that percentage of gross revenue was a good metric to use to determine executive level salaries. The seminar also corroborated husband's compensation data, which indicated his compensation leveled out after roughly 20 years of experience.
Ellis took into consideration whether LBA had the ability to pay husband for the additional compensation during that time period. Ellis determined the amount of working capital LBA possessed and determined the excessive amount of working capital compared to the reasonable amount of working capital other businesses in the industry would normally keep in reserve. She determined that LBA had sufficient excess working capital to pay the additional compensation without posing a detriment to the business.
2. Opinion of Husband's Valuation Experts
Husband presented two valuation experts at trial, Stephen Zamucen and Michael Smith. Both experts found husband was provided reasonable compensation or was even overcompensated by LBA during the marriage. Zamucen opined that LBA was marginally profitable and had a negative net income many of the years it operated. Although not included in the report, during trial Zamucen testified that the additional compensation amount derived by Ellis was approximately the same amount as the net income created by LBA during that time period, and that if the additional compensation had been paid it would have caused the company to go bankrupt following several unprofitable years between 2003 and 2006 in which the company suffered over $400,000 in losses.
Zamucen compared husband's salary to a survey from Meat & Poultry Magazine, interviews with similar companies and the ERI database. Zamucen found the estimated reasonable compensation from the ERI database for the 2010 calendar year, added a 15 percent premium to account for California wages and reduced the amount by 4 percent for each previous year to account for inflation. Smith also found husband to be overcompensated during the marriage, but provides no explanation in his report how he determined husband's reasonable compensation. During trial, he testified that he determined husband's reasonable salary by deciding that husband's salary of $216,000 in 2010 was reasonable, and reduced the amount accordingly by an inflation index to determine the reasonable salary for each prior year.
It is worth noting here that Zamucen's written opinion consisted of only three pages, one of which is a list of authorities regarding corporate issues generally, one page consists of cursory conclusions and one page is a chart analyzing husband's wages with minimal explanation.
3. Trial Court's Ruling
Despite the fact that wife's expert had less accounting experience and provided fewer expert opinions, the trial court was "guided by the better reasoned analysis as applied to the circumstances" by Ellis. The court agreed that gross revenue was a more reliable metric to use to determine reasonable compensation, and noted that "net incomes can and are, at times, manipulated by various tax strategies, including but not limited to increased and advanced expensing through the corporation, which result in a reduced net income thereby skewing its reliability for the analysis before the court." The court found Ellis's use of a graduated increase in wage application from 1986 forward along with checking her results against ERI survey of salary data to be reasonable and credible. After finding Ellis's methodology and calculation to be better reasoned than that of husband's experts, the court held that husband was undercompensated in the sum of $912,000 by LBA.
It appears the court rounded the value of undercompensation from $912,172 to $912,000.
4. Analysis
Husband contends that the trial court erred in finding that he was undercompensated by LBA. First, husband claims that the court failed to make a specific finding that LBA was capable of paying him the additional compensation. Next, husband asserts that Ellis' expert opinion and testimony was not sufficient evidence to support the court finding that LBA had the ability to pay the additional compensation. Finally, husband argues that Ellis's testimony was not sufficient evidence to support using the percentage of gross revenues as a reliable metric to determine husband's reasonable compensation. We will address each in turn.
a. Failure of Court to Address Ability to Pay
Husband contends that the trial court failed to find whether LBA was capable of paying husband additional compensation, which constituted error under Code of Civil Procedure sections 632 and 634. Under Code of Civil Procedure section 632, the court is required to "issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party ...." If, however, the "statement of decision does not resolve a controverted issue ... it shall not be inferred on appeal ... that the trial court decided in favor of the prevailing party as to those facts or on that issue." (Code Civ. Proc., § 634.)
Husband correctly notes that the trial court did not expressly explain how LBA was able to afford to pay him the additional compensation. Husband objected to the decision of the trial court noting the lack of explanation in the decision regarding the ability to pay additional compensation. The trial court overruled the objections noting that the statement of decision need do no more than state the grounds upon which the judgment rests, without necessarily specifying every intermediate issue or the particular evidence considered in reaching the decision. The court noted that it "provided sufficient explanation for its findings as to the principal controverted issues set forth in the proposed statement of decision."
As the trial court properly noted in its ruling on husband's objections, the purpose of a statement of decision is to explain the factual and legal basis for the decision. (Code Civ. Proc., § 632; Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1125-1126 (Muzquiz).) The court is required only to state the ultimate rather than evidentiary facts. (Muzquiz, supra, at p. 1125; In re Marriage of Williamson (2014) 226 Cal.App.4th 1303, 1318.) "'"The court's statement of decision is sufficient if it fairly discloses the court's determination as to the ultimate facts and material issues in the case."'" (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 500.)
The statement of decision "need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision." (Muzquiz, supra, 79 Cal.App.4th at p. 1125; see McAdams v. McElroy (1976) 62 Cal.App.3d 985, 996 (McAdams) [courts are not required "'to make a specific determination on every conflict of evidence, much less, to diagram all the intermediate decisions on points of law'"].) The trial court is not required to make an express finding of fact on every factual matter controverted at trial, where the statement of decision sufficiently disposes of all the basic issues in the case. (Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1118.) Here, the ultimate issue is whether husband was undercompensated based on what his reasonable compensation should have been. The court resolved that ultimate issue, which was controverted at trial.
However, a trial court commits reversible error if it fails to make findings as to a material issue that would fairly disclose the determination of the court. (People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 524.) If the trial court erred and failed to make a material finding of fact, it must be determined if that failure was harmless. "The failure to make a finding on an issue raised in the pleadings and supported by substantial evidence is harmless when the missing finding reasonably may be found to be implicit in other findings. The failure to find is also harmless when, under the facts of the case, the finding necessarily would have been adverse to the appellants." (McCullough v. Jones (1970) 11 Cal.App.3d 270, 275.) "'Omission to find, if the judgment is otherwise supported, is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings [citations].'" (McAdams, supra, 62 Cal.App.3d at p. 996.)
Husband presented 35 specific objections regarding issues that the court did not explain or failed to consider in its decision. The court was not required to provide specific answers to those questions so long as the statement of decision fairly disclosed its determination of the ultimate issues. (See People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at p. 525.) The court issued a 28-page ruling addressing the main contentions of the parties, including the court's determination on each issue. This was a complex case. Each party presented experts and records detailing the significant and varied marital and community property interests of the parties. The court held a 15-day trial with extensive testimony from the parties and their respective experts.
The court was not required to specify the particular evidence considered in reaching its decision that husband was undercompensated. This includes finding specifically that LBA could afford to pay husband the additional compensation. It is reasonable to conclude, based on the other factual findings made by the court, that in considering what husband's reasonable compensation should have been, the court considered whether LBA could reasonably afford to pay it. LBA's ability to pay, therefore, is implicit in the court's ultimate determination of what compensation would be reasonable. (McCullough v. Jones, supra, 11 Cal.App.3d at p. 275.) The trial court specifically adopted Ellis's findings made in her opinion and testimony. The court found Ellis's analysis "better reasoned," including finding the use of gross revenue to calculate salary "a more reliable metric," reliance on LBA's own data a "more reasonable and accurate approach," and concluding that "Ellis's use of a graduated increase in wage application from 1986 forward along with the comparison to the E.R.I. survey, including exclusion of perquisites from the wage analysis, to be reasonable and credible." Even assuming that the fact was material and the court erred by omitting a finding as to the ability to pay, the error was harmless.
Based on the court's decision, had a factual finding that LBA was capable of making the additional compensation been made, it necessarily would have been adverse to husband. (McCullough v. Jones, supra, 11 Cal.App.3d at p. 275.) Husband's experts presented testimony on appeal that the additional compensation payments to husband would have caused LBA to go bankrupt and husband argued as much in his posttrial briefs and in presenting his objections to the statement of decision. The court was aware of the arguments made by husband that LBA was not profitable and that additional compensation payments would have led to bankruptcy, but nevertheless found Ellis's determination of additional compensation reasonable. The court was aware the differing opinions of the parties' experts, and nothing in the record indicates that the court relied upon husband's expert's opinion that LBA was unable to make the additional payments. The court questioned the accuracy and the reliability of the data husband provided to his expert and expressly questioned husband's credibility on financial issues. The ruling is clear that the court was guided by and relied upon the analysis of Ellis. Accordingly, the court's failure to make a specific ruling, even if material, was harmless.
b. Ability of LBA to Pay Additional Compensation
As noted above, there was substantial evidence that LBA was capable of providing husband additional compensation.
The court found Ellis's determination more reasonable, and relied on her opinion as to husband's compensation. Ellis calculated the estimated excess working capital of LBA and opined that "LBA appeared to have funds available to pay the additional compensation without posing a detriment to the business." She included a table in her report showing her calculations for each year regarding the working capital of LBA, her calculation of what would be a reasonable amount of working capital based on industry norms to pay for business operations and the extra amount of working capital held by LBA each year. Ellis further noted that it was not necessary to determine and only pay additional compensation out of excess working capital, as wages could additionally be paid from working capital alone. Creating an additional category of excess working capital was an attempt to illustrate that there were sufficient funds above and beyond what the business needed from a cash flow perspective to maintain operations to pay for the additional compensation.
Ellis was specifically asked about husband's experts opinions that LBA would have gone bankrupt had it attempted to pay husband the additional compensation. She responded that there was sufficient excess working capital to pay the compensation and not jeopardize the ongoing viability of LBA. Upon cross-examination, she was specifically questioned whether it would have been difficult to pay husband additional compensation in 2002 as the excess working capital was only $195,000. Ellis responded that since the excess capital was the amount of working capital that was above what was reasonably required, the fact that it would be used on additional compensation would not be an issue. Furthermore, in 2002, Ellis determined husband was undercompensated by $89,000. As LBA had $195,000 in excess working capital, had husband been paid the additional compensation that year, over $106,000 in excess working capital would have remained. Not to mention that the excess capital was in addition to the $426,000 in working capital held by LBA that would comply with reasonable standards in the industry. LBA had significantly more excess working capital in each of the other years in which Ellis determined that husband was owed additional compensation compared to 2002. LBA's excess working capital ranged from $308,000 to over $1 million in the other years in question.
According to Ellis's chart of additional compensation and excess working capital, 2002 was the leanest economic year in which Ellis found that husband would be entitled to additional compensation from LBA.
Based on her professional experience, Ellis was skeptical as to whether the alleged net income and losses were accurate. She noted that based on the manner the business was formed, there was an incentive to reduce the amount of taxable income, and she questioned how the business maintained so much working capital had there been true economic losses each year.
Husband counters that had Ellis subtracted the additional compensation from LBA's working capital each year, LBA would not have sufficient funds to operate by 2002. Ellis did not agree with that proposition that the additional payments would have made LBA insolvent. She was skeptical of relying upon the net income numbers determined by Zamucen to show the inability to pay the additional wages because it was possible that alleged losses were not true losses, but were included based on the incentive to keep taxable income low. She further questioned the net income numbers in light of the significant amount of working capital the company had on hand. On appeal, wife argues that if husband had been paid more, resulting in reductions to excess working capital, husband could have adjusted LBA's spending in other areas to compensate. Wife also notes that during the period in question, LBA made significant payments through dividends and its profit sharing plan that could have been reduced to allow for additional compensation. For example, husband's expert noted that from 1995 to 1998, LBA made dividend payments of $566,000. Also, from 1990 to 1994, $71,000 was contributed to LBA's profit sharing plan.
In a related argument, husband alleges that LBA did not have sufficient cash in the bank to make additional compensation payments. Husband contends that LBA could have only paid salaries using cash and refers to one of his expert's charts showing that for the years between 1998 to 2002 LBA had between $230,000 and $517,000 in cash in a given respective year. Husband contends that the chart shows that LBA did not have sufficient cash to pay husband $912,000 by 2002. Wife's expert was not questioned specifically regarding the alleged lack of cash with which to pay additional compensation. However, LBA had very little cash on hand in several years following 2002 when it was paying husband a significantly larger salary. From 2005 onward, husband was being paid $216,000 each year (an amount that the parties both found to be reasonable), however in four of those years, LBA had no more than $16,000 in cash on hand. Husband makes no attempt to reconcile why husband was hamstrung by paying additional salary before 2002 due to a lack of cash when it did not stop him from increasing his salary thereafter.
Husband next contends that there was not sufficient evidence presented to the court that LBA was able to pay the additional compensation. He attempts to show that this is true by challenging the opinion of wife's expert with the opinions of husband's experts. What the trial court was presented with was a classic example of competing expert opinions. Husband is not challenging the admissibility of the evidence presented by wife's expert. Instead, husband is arguing that wife's expert's opinion and calculations are incorrect and, therefore, are not sufficient evidence with which to uphold the ruling. Differences between the experts' opinions go to the weight of the evidence. (In re Marriage of Bergman, supra, 168 Cal.App.3d at p. 752.) Ellis's opinion provides sufficient evidence even if the opinions of husband's experts raise legitimate questions as to its reliability.
But that is not the case here. Ellis provided logical and detailed calculations to support her determination of husband's reasonable compensation. This included describing how LBA had significant reserves of excess working capital with which to pay for the compensation. The fact that husband's experts reached a different conclusion does not negate Ellis's testimony. The court superficially found that Eliis provided a "better reasoned analysis as applied to the circumstances that existed in this case." Further, as an appellate court, we are not to second-guess evidentiary assessments regarding the credibility and weight to give to expert opinion. (In re Marriage of Winternitz, supra, 235 Cal.App.4th at p. 653.) Upon our independent review of the record, wife, through her expert, presented substantial evidence that LBA had the ability to pay husband additional compensation.
c. Use of Gross Revenues as Metric for Compensation
Husband's second major contention is that the trial court committed error in accepting wife's expert's reliance on gross revenues as a metric for determining husband's reasonable compensation.
Wife's expert explained that she used the percentage of total gross revenue of LBA as a metric to determine reasonable compensation. Ellis was not aware of any authority requiring the use of gross revenue as a metric; however, she did provide information from a continuing education class, which explained that many executive level employees of corporations are compensated based on a proportion of gross revenue. Although he disagreed with her calculations, Zamucen also noted that he has used and seen other accountants use gross revenues as a metric to determine reasonable compensation.
Ellis compared her calculation of husband's salary estimates using ERI data and found they were generally correlated. Husband's experts likewise testified that they relied upon ERI data to determine his reasonable compensation from LBA. Zamucen testified that in using the ERI data, he took the reasonable compensation number based off of the ERI data in 2010 and then added a 15 percent premium to account for California wages.
Husband's experts provided little explanation as to how they determined their reasonable compensation amounts in their respective reports. Smith found husband to be overcompensated during the marriage, but provides no explanation in his report how he determined husband's reasonable compensation. Zamucen's written portion of his opinion states in total, "1. [Husband] was an employee of [LBA] from 1976 to 1986. His wages were reasonable and/or he was overcompensated. [¶] 2. [Husband] was President of [LBA] from 1987-2010. [Husband] was overcompensated during that time period." However, in three footnotes in a chart showing Zamucen's opinion as to reasonable compensation, he notes that he compared husband's salary to a survey from Meat & Poultry Magazine, interviews with similar companies, and the ERI database.
Husband argues that the use of gross revenue is not an appropriate metric because the revenue of LBA fluctuated between 1986 and 2002, which accordingly made Ellis's estimate of compensation vary from year to year. He contends that no CEO would tolerate the amount of variation in compensation. According to Ellis's chart of reasonable compensation, she determined that husband's salary would drop in years in which LBA had decreased gross revenues. During trial, Ellis acknowledged the variation, but noted that spikes in revenue should not directly drive compensation and that while LBA did have several better performing years, the revenue numbers were fairly static over time.
Despite husband's argument to the contrary, there was substantial evidence to support Ellis's use of gross revenue as a metric to determine reasonable compensation. Ellis presented evidence that gross revenues are used to determine the reasonable compensation of corporate executives and husband's expert admitted he had seen it used. Moreover, Ellis compared her reasonable compensation figures with ERI survey data, the same survey data husband's expert used to determine reasonable compensation. Husband's arguments do not establish a lack of evidence to support the court's finding. Instead, his argument shows there was a difference of opinion by the respective experts. The conflicting testimony only applies to the weight of Ellis's opinion, which, upon review, the trial court found more reliable. Husband's contention that there was insufficient evidence to support relying on gross revenues is without merit.
d. Did the Court Abuse Its Discretion?
Having determined that there was sufficient evidence of LBA's ability to pay additional compensation and to support using gross revenue as a method to determine reasonable compensation, we now turn to whether the court abused its discretion in awarding the community the additional compensation.
Although the court did not discuss the ability of LBA to pay the additional compensation in its decision, husband has not shown that the court abused its discretion in relying upon the opinion of wife's expert that there were sufficient funds to pay the additional compensation. The court was presented with competing opinions of the parties' respective experts. Wife's expert opined that husband was undercompensated by LBA and that it had sufficient working capital to pay reasonable compensation without becoming insolvent. Husband's experts found the opposite. They claimed that husband was either adequately compensated or even overcompensated, and that further compensation payments would have bankrupted LBA based on LBA's net income. While not specifically addressing husband's argument regarding alleged lack of ability to pay, the court noted that it was plausible that net income amounts can be manipulated by various tax strategies affecting the reliability of such a number. It found that possible tax strategies "skew[ed] the reliability" of the net income analysis and the net income was the figure that Zamucen relied upon to determine the alleged lack of ability of LBA to pay the additional compensation.
Husband contends that since Ellis did not have evidence as to how the net income numbers could have been manipulated, her testimony on that issue was speculative and not to be relied upon. (Pacific Gas, supra, 189 Cal.App.3d at p. 1135.) However, an expert may present opinion evidence based on a matter personally known to her based on special knowledge, skill, experience, training and education. (Evid. Code § 801.) Ellis's skepticism of the net income numbers was based on her auditing background, and serves as proper opinion evidence. Her statements are sufficient to serve as substantial evidence, and the lack of any additional detail to her argument only affects the weight of the argument made.
In contrast, the court found the use of gross revinues to be a more reasonable metric and that Ellis's opinion was generally "better reasoned." It must be noted that the trial court was limited to the evidence presented by the parties. It did not, and could not, determine whether the amounts of working capital or the net revenues of the company, as asserted by the parties, were correct. It could only make decisions based on the best reasoned opinion of the experts in light of the evidence upon which the expert provided. The court expressed serious concerns about the information husband provided to his experts and about husband's credibility as to issues involving money and assets. Ellis provided the best reasoned opinion testimony that working capital was a reliable indicator to show that LBA could afford to pay additional compensation.
The court's ruling did not exceed the bounds of reason in relying on Ellis's opinion and her calculations regarding husband's reasonable compensation from LBA. (Ackerman, supra, 146 Cal.App.4th at p. 197; In re Marriage of Connolly, supra, 23 Cal.3d at p. 598.) The court did not abuse its discretion, and the community is entitled to the additional $912,000 in compensation.
B. Compensation for Efforts Spent as Trustee
Husband contends that there is no legal basis for the trial court to order him to compensate the community for his efforts spent as trustee to the family trusts. He also argues that the court erred in adopting Ellis's calculations as to those fees. We will address each in turn.
1. Legal Support for Apportionment of Trustee Fees
Husband first argues that there is no legal support for the trial court's finding that the community should receive reasonable compensation for husband's community efforts as a trustee. He argues that the parties agreed that a Van Camp analysis and apportionment was improper during posttrial briefing, but that it appears the court relied on a Van Camp rationale in its ruling anyway.
In response, wife contends that the decision to compensate the community was based on the equitable powers of a family law court. (See In re Marriage of Boswell (2014) 225 Cal.App.4th 1172, 1175.) Family law cases "'are equitable proceedings in which the court must have the ability to exercise discretion to achieve fairness and equity.'" (In re Marriage of Egedi (2001) 88 Cal.App.4th 17, 22-23.) Wife also relies on the general statutes of the family law court to equally divide the community state between the parties and that the court can "make any orders the court considers necessary to carry out" the division. (Fam. Code, § 2553; see Fam. Code, § 2550.) Accordingly, based on the broad statutory powers granted by the Family Code, wife argues there was legal authority and "'broad discretion to determine the manner in which community property is awarded in order to accomplish an equal allocation. [Citation.]'" (In re Marriage of Gréaux & Mermin (2014) 223 Cal.App.4th 1242, 1250; see In re Marriage of Andresen (1994) 28 Cal.App.4th 873, 880.)
a. Trial Court's Ruling
The trial court found wife's claim was not directed against the trusts, but instead sought compensation for husband's community property efforts in a separate property enterprise. Further, the court found that wife made a "persuasive case entitling the community to reasonable compensation for Husband's community property efforts as Co-Trustee." While the court described significant reasoning in support of its finding, it did not provide any legal authority on which to base its determination that the community should be credited $832,000.
b. Analysis
Despite the fact that the court did not describe the legal authority upon which it relied, the court's determination may still be upheld if determined to be correct. "If the decision of a lower court is correct on any theory of law applicable to the case, the judgment or order will be affirmed regardless of the correctness of the grounds upon which the lower court reached its conclusion." (Estate of Beard (1999) 71 Cal.App.4th 753, 776.) We review the trial court's ultimate ruling, not its reasons. (Muller v. Fresno Community Hospital & Medical Center (2009) 172 Cal.App.4th 887, 906-907; see Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1481 ["the appellate court should affirm the judgment of the trial court if it is correct on any theory of law applicable to the case, including but not limited to the theory adopted by the trial court"].) Accordingly, the appellate court will determine if there is legal and factual support for the trial court's ruling.
The court found that the community was entitled to reasonable trustee fees for the efforts of husband in managing his family's trusts to which he and his family were beneficiaries. The underlying assets of the trusts included stock in LBA and farmland. As husband was already compensated as CEO of LBA, Ellis did not consider that interest in the trust in computing its value.
Wife correctly points out the broad equitable power of the court to equally divide property to achieve fairness and equity. (In re Marriage of Gréaux & Mermin, supra, 223 Cal.App.4th at p. 1250.) In this case, husband was a trustee and beneficiary of real property. As trustee, husband played a role managing and exchanging the property, the value of which increased during the marriage.
California courts have long held that an apportionment of profits is required not only when the husband conducts a commercial enterprise, but also when he invests separate funds in real estate or securities. (Estate of Neilson (1962) 57 Cal.2d 733, 740 (Neilson).) The proceeds and increment in value are apportioned entirely to the husband's separate estate only when they are attributable solely to the natural enhancement of the property or when the husband expended only minimal effort and the wife introduced no evidence attributing a value to his services. (Neilson, supra, at pp. 740-741.)
This principle was first applied to a spouse's efforts expended in connection with a separately owned farm or business. (E.g., Pereira v. Pereira , supra, 156 Cal. at p. 7; Huber v. Huber (1946) 27 Cal.2d 784, 792.) Later, courts expanded the doctrine to hold that apportionment of profits is required when a spouse invests his or her separate property. (See e.g., Neilson, supra, 57 Cal.2d at p. 740; Margolis v. Margolis (1952) 115 Cal.App.2d 131, 135.) Based on this rationale and the equitable considerations to ensure equal division, we find there is ample legal authority for the court's determination that the community should have been credited for reasonable trustee fees for husband's efforts to manage the separate property enterprise. We are unaware of any reason why the right to apportionment would be different based on the fact that the assets were held in trusts rather than outright. Husband was expending his effort during marriage to manage the assets of the trust. As a beneficiary of the trusts, his efforts to increase the value of trust assets benefitted him and his failure to charge the trusts reasonable trustee fees divested the community of compensation reasonably owed to it based on his skill and efforts during the marriage.
Husband correctly points out that wife accepted that Van Camp apportionment was not proper to determine the amount of husband's reasonable trustee's fees. However, wife still argues that the community is entitled to trustee fees. She agrees that the reasonable fee should not be calculated based on a Van Camp analysis of the actual value of the services performed by husband. Instead, she asserts that the amount of trustee fees should be based on industry standards. Wife's argument is not construed as an abandonment of the right to apportion a community interest to the efforts spent managing the trusts, just that a different method of calculating the compensation should be used.
Even if legal authority supports compensating the community for husband's time and effort spent as trustee, he contends that his time contributed to managing the trusts should be considered a charitable act for the benefit of his family for which no compensation is owed. But this was not a charitable act. Husband managed the trusts' assets for the economic interest of himself and the other beneficiaries. The assets of the trusts were operated as a business enterprise. Even if he acted as trustee primarily due to a sense of familial duty, it was not for a public good, but for the economic gain of himself and his family members.
Husband finally contends that should the community be entitled to trustee fees, husband should be able to charge wife for time spent raising their children or caring for a sick parent that was made without the expectation of compensation. We see no merit to this argument. Wife correctly counters that time spent with children is community time, whereas husband's time spent managing his separate property trusts took away from the community. As opposed to time spent volunteering to personal matters or even the public good for which there is no expectation of compensation, husband acted as trustee to manage and increase the value of the separate property trusts' assets.
The trial court had equitable authority to apportion reasonable trustee fees for husband's efforts managing real property investments. (Neilson, supra, 57 Cal.2d at p. 740.) As such, we hold that the trial court did not abuse its discretion as there is sufficient legal authority to support crediting the community with reasonable trustee fees.
2. Evidence to Support Amount of Trustee Fees
Next, husband asserts that the court relied on unreasonable assumptions made by Ellis in calculating the reasonable amount of trustee fees. Husband contends there was insufficient evidentiary support as to the amount of fees, as Ellis finding a rate of compensation of one-half of 1 percent of the value of the trusts' assets, that husband spent significant time managing trust assets and the actual value of the trust assets were unreasonable in light of the evidence presented.
a. Evidence Supporting Amount of Fees
The trusts indicated that the trustee was entitled to reasonable compensation for services rendered managing trust assets. Husband admitted as much at trial. A handwritten note from husband potentially indicated that he was entitled to a trustee fee of one-half of 1 percent each year. The note states "one percent of Estate goes to Executor" and ".5 of one percent each year." In addition, wife also testified that husband spent significant time acting as trustee. He would spend hours in his home office talking to attorneys and his mother and sisters, and he attended many meetings regarding how to manage the trusts' assets. Husband reviewed boxes of information from developers and took several out-of-town trips to look at possible properties to exchange for Lover's Lane. Wife testified that she felt he was spending significant time acting as trustee during the marriage and told him that he should be receiving compensation for his time.
Ellis provided a chart showing her calculation of reasonable trustee fees, excluding the value of the LBA stock held in trust. Ellis was not given any records that would reflect the actual value of the assets in trust and had to calculate the estimated value based on what information she had. She started with the fact that the trust exchanged the Lover's Lane property for two other properties in 2007. At the time of the exchange, the Lover's Lane property was worth approximately $8.9 million. She then reduced that amount for inflation for each year preceding 2007 until 1986, the year the trusts were created. Accordingly, the value of the assets of the trusts declined each year from the $8.9 million value from 2007, before ultimately reaching a value of $4.6 million in 1986. Ellis did the similar calculations from 2010 to 2008, based on the value of the two new parcels.
Next, Ellis formed an opinion on the reasonable rate of compensation. She settled on a rate of 0.5 percent annually of the fair value of the trusts' assets. In support of that figure, Ellis relied on husband's notes, research she conducted indicating graduated trustee fees based on the value of trust assets, and husband's potential liability as a fiduciary of the trusts. By calculating the fair value of the trusts' assets each year by the 0.5 percent rate, Ellis reached a reasonable total compensation value of $832,000.
Husband's experts did not present testimony regarding a reasonable value for husband's efforts as trustee. At trial, husband's expert accepted the theory that a trustee could be entitled to an annual fee based on the value of the assets of a trust.
b. Analysis
We find substantial evidence supported the court's valuation of trustee fees. First, husband argues that a survey of trustee fees used by Ellis did not support a reasonable fee of 0.5 percent of the value of the trusts' assets per year. Husband pointed out that in the survey, none of the eight corporate trustees charged more than 0.2 to 0.4 percent of the amount in trusts over $5 million. Husband's interpretation of the survey is misleading. The survey shows that the trust companies surveyed charged decreasing fees as the amount of the value of the trusts went up. The survey indicated the different fees applied to the first $1 million in trust, then the amounts between $1 million and $3 million, then $3 million to $5 million and finally the rates for any amount above $5 million. Husband is correct that none of the trustees surveyed charged more than 0.4 percent of the value of trust assets above $5 million; however, many of the trustees charged amounts at or above 0.5 percent for trust assets below $5 million. For example, Saturna Trust Company charged 0.5 percent of the value of the trust for any amount under $5 million and then 0.4 percent for any amount thereafter. Ellis's calculation of the value of the trusts for the relevant years ranged from $4.6 to $8.9 million. Based on the larger trustee fees charged for the initial amounts of trust assets, the survey provides sufficient evidence that a trustee fee rate of 0.5 percent was reasonable.
Husband also contends that the fees charged by corporate trustee institutions do not necessarily correlate to the reasonable trustee fees an individual would charge. While husband's argument may have some merit, it does not negate the evidence and opinion presented by Ellis. Even if husband's contention is true, he provides no evidentiary support that noncorporate trustees charge different rates. Husband's argument alone, unsupported by evidence, does not show a lack of evidentiary support for Ellis's calculation of trustee fees.
Likewise, husband challenges the use of the handwritten note as a basis for finding that a 0.5 percent trustee fee was reasonable. The note is rather vague and speaks to the amount the executor of husband's father's estate is entitled to each year. Ellis admitted that the note was "a little cryptic," but that, along with her other research, she interpreted it to mean that the trustee was entitled to such fees. Despite the uncertainty of the meaning of the note, Ellis found the note, in corroboration with the survey evidence was sufficient to determine a reasonable trustee fee rate of 0.5 percent. Due to its imprecise wording, the note alone was not likely sufficient evidentiary support to justify Ellis's opinion as to the reasonable amount of trustee fees. However, her opinion was not based on the note alone.
Husband is also critical of the accuracy of Ellis's determination of the value of the real property held in trust. Ellis admitted that reducing the value of the property each year based on inflation was not entirely accurate or reflective of the values of the real property in prior years, but noted that it was a method of estimating the value of the real property assets with the information that she had. She further admits that she probably could have done further research to determine the value of agricultural land in past years, such as when the trusts were created in 1986. Husband supports his argument by relying on a New Jersey decision where a court determined that the consumer price index was too broad to be a true barometer of increases in real property values. (Mediterannean House v. Fort Lee Borough (1985) 7 N.J.Tax 528, 537.) The fact that another court reached a different determination regarding the use of inflation to determine property values is not material to our present decision on appeal whether there was sufficient evidence and whether the court abused its discretion in reaching its holding.
During trial, husband testified that the assigned value of the Lover's Lane property was roughly $300,000 at the time the trusts were formed. But the court specifically noted that husband's testimony regarding assets with monetary implications were inconsistent and raised questions of the veracity of his testimony. The fact that husband presented contradictory evidence as to the value of the real property, while considered by the court, does not affect whether the evidence presented by wife was sufficient to support the court's finding.
Despite the flaws in her calculations and the presentation of contradictory evidence by husband, the court found Ellis's methodology and calculations in determining the value of trustee fees to be "acceptable and reasonable." Her testimony provided sufficient evidence to support the finding even with the acknowledged discrepancies, and the court did not abuse its discretion in relying on Ellis's opinion to determine the reasonable trustee fees to credit to the community. While Ellis admits that the estimate is not perfectly accurate, husband has not shown that her opinion was so speculative or based on a leap of logic or conjecture as to not provide evidentiary support for the court's ruling. (Sargon, supra, 55 Cal.4th at p. 772.)
C. Permanent Spousal Support Award
The court awarded wife $29,500 a month in permanent spousal support. Husband believes the trial court abused its discretion in calculating the amount of spousal support by including $9,000 in monthly costs that were not related to wife's standard of living and, additionally, for not reducing the amount of spousal support by $9,750 for interest that wife could generate from her separate property assets. Husband also contends that the court placed undue emphasis on the marital standard of living in determining the award of permanent spousal support.
Husband argues that in light of the above reductions, wife's spousal support should be reduced to a total of $10,750 a month.
1. Legal Standard
Spousal support is governed by statute. (See Fam. Code, §§ 4300-4360.) "In ordering spousal support, the trial court must consider and weigh all of the circumstances enumerated in the statute, to the extent they are relevant to the case before it." (Cheriton, supra, 92 Cal.App.4th at p. 302.) "The first of the enumerated circumstances, the marital standard of living, is relevant as a reference point against which the other statutory factors are to be weighed." (Id. at p. 303; see Ackerman, supra, 146 Cal.App.4th at pp. 207-208.) "The other statutory factors include: contributions to the supporting spouse's education, training, or career; the supporting spouse's ability to pay; the needs of each party, based on the marital standard of living; the obligations and assets of each party; the duration of the marriage; the opportunity for employment without undue interference with the children's interests; the age and health of the parties; tax consequences; the balance of hardships to the parties; the goal that the supported party be self-supporting within a reasonable period of time; and any other factors deemed just and equitable by the court." (Cheriton, supra, at pp. 303-304; Fam. Code, § 4320, subds. (b)-(h), (j)-(l), (n).)
The trial court possesses wide latitude when weighing the factors set forth in Family Code section 4320, "'with the goal of accomplishing substantial justice for the parties in the case before it.'" (Cheriton, supra, 92 Cal.App.4th at p. 304.) "The trial court has broad discretion in balancing the applicable statutory factors and determining the appropriate weight to accord to each, but it may not be arbitrary and must both recognize and apply each applicable factor." (Ackerman, supra, 146 Cal.App.4th at p. 207.) The court does not have discretion to ignore relevant circumstances enumerated in the statute and the failure to apply each applicable factor is reversible error. (Cheriton, supra, at pp. 302-304.) Here, husband does not claim that the court failed to weigh each of the enumerated factors set forth under Family Code section 4320. Instead, he challenges the amount of the monetary award and claims the court placed too much emphasis on the marital standard of living factor.
2. Inclusion of Certain Expenses in Calculation of Support
Husband contends that wife's expert's calculation of needed monthly spousal support award included unnecessary expenses and that the court erred in failing to reduce the award accordingly. He argues the court improperly included $1,500 for cash, $1,500 for "'loans/transfers to savings,'" $1,000 for unknown and $2,000 for other, for a total of $6,000 as part of the spousal support award. As the spousal support also provided wife a tax allowance, husband asserts that the tax allowance should be reduced accordingly to account for the lower amount of support, which in this case is an additional $3,000. All said, husband argues that the spousal support should be reduced $9,000, thereby reducing the monthly support award from $29,500 to $20,500 a month.
a. Court's Ruling
The court reviewed and provided explanation regarding each factor set forth by Family Code section 4320 when determining the spousal support award. Despite reviewing each relevant factor, the court did not address each itemized expense listed by wife's expert. The court accepted the evidence presented by wife's expert that the family's average net monthly expenses prior to separation were $51,119 and that the standard of living enjoyed by the parties was high.
b. Analysis
Wife contends that in determining the spousal support award, the court reviewed each of the required factors and that evidence was within the range presented by Ellis and is, therefore, supported by substantial evidence. In calculating the family's expenses, Ellis used the contested categories (cash, loans/transfers to savings, unknown and other) to place certain community expenses. Husband challenges the categories as amorphous and that they do not indicate a true need for each of the expenses. Husband mistakes the inquiry as to whether there was a specific item for which each expense category was needed, rather than whether the expenses described by all of the categories accurately reflected the cost to maintain the standard of living during the marriage. Ellis determined that the community expenses were $520,000 in 2007, $531,000 in 2008, $851,000 in 2009, and $242,000 for the first four months of 2010. Each of the challenged categories were listed as expenses during the last three and one-third years of the marriage. For example, the evidence indicated that wife was provided on average $1,500 in cash a month prior to separation. The cash was not required to pay for necessary living expenses that were otherwise itemized as expenses. Instead, it was a benefit incident to the high standard of living. The parties maintained a standard of living during the marriage in which wife was entitled to money that was not otherwise accounted for that could be spent as she saw fit.
We recognize and acknowledge that the use of terms "unknown" and "other" are vague and call into question what was actually bought with the funds. Regardless, the trial court accepted Ellis's calculation of monthly expenses. According to her calculations, the family spent on average $1,300 on "Unknown" and $6,000 on "Other" expenses each month during the last three years of the marriage. Even without knowing how those categories of money were spent, husband does not challenge that the numbers accurately reflect the amounts spent during the marriage. Instead, he argues that they could not relate to an expense that wife would incur after the marriage. Husband's assertion is not based on any facts in the record or the opinion of his experts. Having not challenged the specific expenses at trial, husband has not established a sufficient record to show the court's findings were incorrect.
With regard to the final category, husband argues that $1,500 towards "'loan/transfer to savings'" was improper because there was no need for wife to save money if husband was paying for all of her expenses. Regardless whether there is a need to save money, the ability to save money was one expense established based on the standard of living during the marriage.
As noted earlier, because of the parties' ages, the spousal support award may be subject to modification upon a material change of circumstances such as husband's retirement or reduction in workload or income justifying wife's need to same.
While the evidence presented by Ellis could have been more thorough, she testified that her calculations were based on the records provided by the parties. This serves as sufficient evidence to support the court's finding. Further, the court did not abuse its discretion in awarding spousal support for these categories. The categories, although unartfully labeled, serve to provide the court evidentiary support that such expenses existed and taken into account when addressing the needs of wife's high standard of living achieved during the marriage.
3. Interest from Wife's Assets
Husband next contends that the award of spousal support should be reduced by $9,750 for the reasonable return on investments wife could earn should she choose to invest her share of the community property assets. Wife's expert, in her calculation of reasonable spousal support calculated and applied a reduction to the reasonable spousal support based on wife's ability to earn interest from investing her share of the community assets. In posttrial briefing, wife argued that although the court may consider investment income made using the distributed community assets, she should not be required to use the community property assets to support herself. Further, wife asserts that the need based on the standard of living established during the marriage included the ability to contribute to savings and investments, as the parties had done before separation.
The court noted that husband argued that the spousal support award should be reduced by a reasonable rate of return on investment, and that the community estate was estimated to be in excess of $7 million. However, in determining the spousal support award, the court failed to provide explanation as to why it did not decrease the spousal support award based on a reasonable rate of return on investment as to wife's share of the estate assets. Husband filed objections to the court's decision and specifically noted the court's failure to consider the evidence presented by Ellis that the spousal support award could be reduced by $9,750 to account for income generated from the assets awarded to wife. The court overruled the objection, noting that it "provided sufficient explanation for its findings as to the principal controverted issues set forth in the proposed statement of decision."
Based on husband's arguments that the spousal support award should be reduced by the investment income described in his posttrial briefing and objections to the court's ruling, it is clear that the court took into consideration husband's argument but purposely decided not to apply the reduction. The court noted that it need "only state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision." (See Muzquiz, 79 Cal.App.4th at p. 1125.) The fact that the court did not provide elaboration to its spousal finding award is not err. "'"The court's statement of decision is sufficient if it fairly discloses the court's determination as to the ultimate facts and material issues in the case."'" (Ermoian v. Desert Hospital, supra, 152 Cal.App.4th at p. 500.) While the lack of explanation is not error, we still must determine whether the court abused its discretion in providing an award that was not reduced based on wife's ability to obtain investment income from her assets.
Husband cites to several cases explaining that the spouse's share of community assets should be taken into consideration in determining a spousal support award. Among other key factors relevant to a spousal support award, the court must consider the "assets, including the separate property, of each party." (Fam. Code, § 4320, subd. (e).) A spouse's share of community property are assets included in the equation. (See In re Marriage of Brandes (2015) 239 Cal.App.4th 1461, 1490; In re Marriage of Martin (1991) 229 Cal.App.3d 1196, 1201 (Martin); see also In re Marriage of Terry (2000) 80 Cal.App.4th 921, 931 ["assets acquired through the final division of community property should be considered in assessing the sufficiency of the estate for proper support"].) The court noted that the community estate was worth in excess of $7 million, and ordered those assets to be divided. It was therefore aware of the assets of the parties, even though it did not explain why it did not feel it necessary to reduce the spousal support award based on the separate property assets.
Courts must consider the assets of the parties in making the spousal support award. However, the question before us is not whether the court considered those assets, but whether the court is required to reduce the spousal support award based on income that can be generated from those assets. Several courts have held that while the court should consider the ability to generate income, they lacked authority to require the wife to invest the assets to be entitled to support. In Martin, the court held that a wife was not required to buy income-generating investments with over $200,000 she received from her husband's buyout of her share of the community property in order to qualify for support. (Martin, supra, 229 Cal.App.3d at p. 1201.) It was sufficient that the trial court had attributed to the wife an annual income of $8,000 from interest she could receive from investing those assets. (Id. at pp. 1199, 1201.) The court relied on dictum from In re Marriage of Kennedy (1987) 193 Cal.App.3d 1633, where the court observed that a trial court has no authority to order a spouse to invest his or her community property share or face loss of support. (Id. at p. 1640, fn. 3; In re Marriage of Kuppinger (1975) 48 Cal.App.3d 628, 635 [holding that a supported spouse need not convert assets into income-producing investments in order to qualify for continued support].)
While husband presented an example of a case where a spousal support award was reduced, he provides no legal authority that the court erred and abused its discretion by not reducing wife's spousal support award based on the investment income. To the extent that husband contends there was insufficient evidence to support the amount of the permanent spousal support award, we do not find his argument availing. "'[Where] the findings are attacked for insufficiency of the evidence, our power begins and ends with a determination as to whether there is any substantial evidence to support them; ... we have no power to judge of the effect or value of the evidence, to weigh the evidence, to consider the credibility of the witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom.'" (Leff v. Gunter (1983) 33 Cal.3d 508, 518.)
Wife's expert presented evidence that she required $29,500 in estimated monthly support but that the amount could be reduced by almost $10,000 if reasonable investment income were taken into account. Although wife's expert admitted that the amount could be reduced, she presented evidence that a spousal support award of $29,500 was within the range of evidence. Wife argued in her posttrial briefing that the spousal support award should not be reduced by the savings and investments on her share of the community property assets. She contended that the ability to save and invest assets was part of the couple's standard of living at the time of separation. She also explained that the parties anticipated that wife would use part of her share of the community estate to purchase a residence outright as to not incur a monthly housing expense, and the portion of assets spent on the residence would not be available for investment. Wife noted that due to the fact that she spent nearly her entire adult life out of the workforce and due to her age and health conditions that she would never become self-supporting. However, she would be able to contribute to her own support in the future if she was provided the ability to prudently manage and invest her portion of the community estate. This is important given the age of the parties and the possibility of changing circumstances that could lead to one or more modifications of the spousal support award such as, e.g., husband's retirement or reduction in income due to age or health-related concerns.
Based on the arguments and evidence presented, husband has not shown that the court abused its discretion in not reducing the spousal support award in light of passive investment income. The court was presented with argument from husband, and wife's expert acknowledged, that the spousal support award could be reduced. Despite her own expert acknowledging that investment income could be taken into consideration in determining the permanent fee award, wife presented legitimate reasons why the award should not have been reduced. The parties were approaching retirement age, and there was no reason to believe that the spousal support award would remain unchanged when husband wound down his involvement in his business interests. Based on the standard of living during the marriage, it would be reasonable for the court to find that the standard of living included the ability to invest and save for retirement. Further, the court was presented with legitimate argument from wife that at least some of her share of the community property assets would be spent on a personal residence and not available for investment.
Accordingly, the court was presented with argument both for and against imputing the amount of investment income wife could earn to the spousal support award, and decided against it. In reaching its decision, the court reviewed each of the factors set forth under Family Code section 4320 and determined that, in light of all of the factors, wife was entitled to an award of $29,500 a month. This amount reflected the court's finding, based on a totality of the evidence provided, and in light of the fact that wife had limited marketable skills and would not able to become self-supporting; that wife devoted substantial time, energy and effort to support husband; that husband was earning an average monthly income of $99,000 and there was no economic hardship in paying spousal support to wife; that the family enjoyed a high standard of living during the marriage; that the community estate was in excess of $7 million and there were few debts; and that wife had multiple, severe medical conditions.
Based on the trial court's findings, we cannot say it abused its discretion in awarding wife $29,500 in permanent spousal support. The court decided not to reduce the award based on reasonable investment income when evaluating all of the relevant factors and in light of persuasive argument from wife that it was best to allow her to retain investment income from her share of the community assets.
Husband is displeased with the amount of support, but has not identified a basis for reversal. "'"Because trial courts have such broad discretion, appellate courts must act with cautious judicial restraint in reviewing these orders." [Citation.]'" (Ackerman, supra, 146 Cal.App.4th at p. 207.) Despite the lack of explanation from the trial court, its decision was based on substantial evidence and supported the factors set forth in Family Code section 4320. We find no abuse of discretion.
4. Over-reliance on Marital Standard of Living
Husband claims that the court placed too much emphasis on the marital standard of living in determining the spousal support award. Specifically, he argues the factor is less important as wife had been living off of a temporary spousal award of $15,000 a month for a significant period of time. "[T]he marital standard of living is intended by the Legislature to mean the general station in life enjoyed by the parties during their marriage. The Legislature did not intend it to be a precise mathematical calculation, but rather a general reference point for the trial court in deciding this issue." (In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475.) "In evaluating the relevant statutory factors to determine permanent spousal support, 'the actual marital standard of living' is not 'an absolute measure of reasonable need, but merely a "basis" or reference point for determining need and support.'" (In re Marriage of Drapeau (2001) 93 Cal.App.4th 1086, 1095-1096.) "'Weighing the factors specified [by statute] and by appellate case law, the trial court, in exercising its discretion on the issue of spousal support, must endeavor to make an order which will achieve a "just and reasonable" result in each case.'" (Id. at p. 1096.)
Husband argues that the court over-relied on the marital standard of living because it based its award on the exact calculations provided by wife's expert. In reaching its decision, the trial court addressed all of the factors set forth in Family Code section 4320 and determined an amount of support in light of all of its findings. Just because the court found the spousal support amounts proffered by wife to be applicable does not evidence that the court ignored or failed to apply the other relevant factors.
Next, husband contends that the marital standard of living has less significance after the passage of a substantial amount of time following the date of separation. (In re Marriage of Shaughnessy (2006) 139 Cal.App.4th 1225, 1247 ["courts have held that the goal of achieving the marital standard of living may decrease in relative importance over time"].) While that is true in some cases, it is not applicable here. In Shaughnessy, the court, in reviewing a modification of a spousal support award, found that after 10 years of spousal support, wife was on her way to becoming self-supporting and that achieving the marital standard of living was deserving of less weight when reviewing the factors under Family Code section 4320. Here, there is no evidence that wife was ever going to be self-supporting. She was at an age where it was impractical for her to obtain marketable skills and had multiple severe medical conditions. The court found it unreasonable to expect wife to become self-supporting with any reasonable period of time. Based on those findings, the court did not err in placing too much reliance on the marital standard of living factor.
Lastly husband argues that for a significant period of time after separation, wife was receiving substantially less in temporary spousal support, which illustrates that she was capable of living off of only $15,142 a month. First, husband was ordered to pay $17,227 a month in temporary spousal support, not $15,142. Regardless, wife contends that the temporary monthly support award did not permit her to maintain her marital standard of living. She argued that she was unable to properly maintain her house and yard, contribute to retirement and replace her vehicle as she was accustomed to during marriage. She also moved the court to increase her temporary support to $20,000 a month, but the court did not rule on the motion.
After a lengthy trial, the court heard significant testimony regarding the marital standard of living and other relevant factors. Moreover, in making its determinations, the court noted that it found the evidence presented by wife's expert more reliable, and was concerned regarding the credibility of husband. Whether or not wife was able to live on her temporary spousal support is not a factor to be considered under Family Code section 4320 in determining permanent spousal support. Husband has not shown that the court erred by placing too much emphasis on the calculations presented by wife's expert in determining the permanent spousal support award rather than evaluating all of the relevant factors.
DISPOSITION
The judgment is reversed and remanded to correct calculation errors with regard to the valuation of LEI and any resulting changes to the total community estate and equalization payments. As agreed upon by the parties, the judgment should reflect that LEI is valued at $803,036, that husband's postseparation credit should be $27,259 and wife's postseparation credit should be $77,071. The judgment is otherwise affirmed. Wife is entitled to recover her costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
/s/_________
MEEHAN, J. WE CONCUR: /s/_________
LEVY, Acting P.J. /s/_________
SMITH, J.