[No. 56954-6-I. Division One. August 27, 2007.]
In the Matter of the Marriage of CARMEN P. ROCKWELL, Respondent, and PETER G. ROCKWELL, Appellant.
[1] Appeal Findings of Fact Clarification Resort to Oral Opinion. An appellate court may use a trial court's oral opinion to clarify the trial court's formal findings of fact with which the oral opinion is consistent.
[2] Appeal Findings of Fact Review Substantial Evidence In General. A trial court's findings of fact are reviewed under the substantial evidence standard. So long as a finding is supported by substantial evidence, it will not be disturbed on appeal. Substantial evidence exists if the record contains evidence of a sufficient quantity to persuade a fair-minded, rational person of the truth of the declared premise. In reviewing a finding of fact under the substantial evidence standard, the appellate court does not independently weigh the evidence, adjudge the credibility of witnesses, or substitute its judgment for that of the trial court.
[3] Appeal Findings of Fact Review Conclusions of Law. Where a trial court has weighed the evidence and entered findings of fact in support of a judgment, appellate review is limited to determining whether the findings are supported by substantial evidence and, if so, whether the findings support the trial court's conclusions of law. In conducting review, the appellate court should not independently weigh the evidence, adjudge the credibility of witnesses, or substitute its judgment for that of the trial court.
[4] Divorce Disposition of Property Discretion of Court. A trial court has broad discretion in distributing the marital property of divorcing spouses under RCW 26.09.080.
[5] Divorce Disposition of Property Review Standard of Review. A trial court's distribution of property in a marriage dissolution proceeding will not be disturbed on appeal absent a manifest abuse of discretion. A manifest abuse of discretion occurs when the court's discretion is exercised on untenable grounds. A manifest abuse of discretion can also occur if the dissolution decree results in a patent disparity in the parties' economic circumstances.
[6] Divorce Disposition of Property Community Property Equal Division Necessity. In dividing the property of divorcing spouses, a trial court is not required to equally distribute the community property.
[7] Divorce Disposition of Property Community Property Long Term Marriage. A trial court's objective in distributing property in a long term marriage of 25 years or more is to place the parties in roughly equal financial positions for the rest of their lives. This requires the court to consider the combination of the division of the property and the expected income and earnings of the parties. The longer the marriage, the more likely that a court will make a disproportionate distribution of the community property.
[8] Divorce Disposition of Property Community Property Factors Age and Health. In dividing the property of divorcing spouses, an unequal distribution of community property does not constitute an abuse of the trial court's discretion where one spouse is older, semi-retired, and in bad health and the other spouse is in good health and employable at a substantial wage.
[9] Divorce Disposition of Property Social Security Benefits Economic Circumstances Evaluation. Although Social Security benefits may not be divided or reassigned in a marriage dissolution proceeding, or valued for purposes of an offsetting award, they may properly be considered by a court in evaluating the relative economic circumstances of divorcing spouses for purposes of making a just and equitable disposition of their property under RCW 26.09.080.
[10] Divorce Disposition of Property Pensions Federal Pension In Lieu of Social Security Benefits Reduction by Value of Benefits Validity. In valuing a federal pension received by a divorcing spouse in lieu of Social Security benefits for purposes of making a just and equitable distribution of the parties' property under RCW 26.09.080, a trial court may compensate the spouse by reducing the community property portion of the pension by the amount of Social Security benefits to which the spouse would be entitled but for the pension.
[11] Divorce Disposition of Property Future Earnings Age Difference Between Spouses Determination Rounding Up Validity. In valuing the future earning capacity of a divorcing spouse for purposes of making a just and equitable distribution of the parties' property under RCW 26.09.080, the age difference in years between the spouses may be rounded upward by the trial court. Precision in the number of days or weeks or months between the spouses' relative birthdays is not necessarily required.
[12] Divorce Disposition of Property Future Earnings Years of Work Until Retirement Calculation Review Inference. Where a trial court valuing the future earning capacity of a divorcing spouse for purposes of making a just and equitable distribution of the parties' property under RCW 26.09.080 overcalculates the number of years before the spouse reaches age 60, the spouse objects and points out the error to the court, and the court denies reconsideration of the calculation, a reviewing court may infer that the trial court actually intended to calculate the number of years until the spouse's retirement, not the number of years until the spouse reaches age 60.
[13] Appeal Findings of Fact Review Range of Evidence Deference. An appellate court will defer to a trial court's finding of fact that is within the range of credible evidence.
[14] Divorce Disposition of Property Future Earnings Consideration Validity Factors. A divorcing spouse's future earning potential is a substantial factor to be considered by the trial court in making a just and equitable distribution of the parties' property under RCW 26.09.080. In considering a spouse's future earning capacity, the trial court may consider the spouse's age, health, vocational training, and work history.
[15] Divorce Disposition of Property Future Earnings Unemployed Spouse Factors. In valuing the future earning capacity of an unemployed divorcing spouse for purposes of making a just and equitable distribution of the parties' property under RCW 26.09.080, a trial court may consider the spouse's level of education, training, and experience; the range of salaries that the spouse is capable of earning, including the spouse's most recent salary; and whether the spouse is unnecessarily restricting the geographic area in which he or she is seeking employment.
[16] Evidence Opinion Evidence Expert Testimony Conflicting Testimony Discretion of Trier of Fact. When experts reach different conclusions as to the value of an asset, the trier of fact may adopt the value asserted by either expert or any value in between the two. Where the trial court is the trier of fact, the court's denial of a party's motion for reconsideration of the value adopted by the court eliminates the possibility of an inadvertent choice or mere mathematical error in favor of the court's conscious choice of a value within the range of evidence.
[17] Divorce Disposition of Property Pensions Nature of Right. Pension benefits, even if not presently available, constitute property rights in the nature of deferred compensation that are subject to division in a marriage dissolution action.
[18] Divorce Disposition of Property Pensions Community Share Calculation Necessity. When pension benefits were partly accumulated prior to marriage and partly accumulated during marriage, a trial court will proportionately classify the benefits, with the portion acquired before marriage characterized as separate property and the portion acquired during marriage characterized as community property.
[19] Divorce Disposition of Property Pensions Community Share Calculation Proper Method. A trial court must use the time rule method, not the subtraction method, to calculate the community property portion of a divorcing spouse's pension benefits. Under the time rule method, the community share of the pension benefits is calculated by dividing the number of years of marriage (prior to separation) by the total number of years of service for which pension rights were earned and multiplying the result by the monthly benefit at retirement.
Nature of Action: Action to dissolve a marriage.
Superior Court: The Superior Court for King County, No. 04-3-03334-2, James A. Doerty, J., on August 4, 2005, entered a decree dissolving the marriage and dividing the parties' property. The court awarded the community property portion of the wife's federal pension 60 percent to the wife and 40 percent to the husband.
Court of Appeals: Holding that the trial court did not erroneously consider what Social Security benefits the wife would have received but for her type of federal pension in deciding how to divide the parties' community property; and that the trial court did not improperly consider the husband's future earning capacity as a factor in the overall fairness of the property division; but that the trial court erred by using the subtraction method, rather than the time rule method, to characterize and value the wife's federal pension, the court affirms the judgment in part, reverses it in part, and remands the case for further proceedings.
Patricia S. Novotny-, for appellant.
Cynthia B. Whitaker- (of Law Offices of Cynthia B. Whitaker) and Catherine Wright Smith- (of Edwards Sieh Smith & Goodfriend, PS), for respondent.
Ά1 APPELWICK, C.J. Peter Rockwell challenges the fairness of a 60/40 division of property in the dissolution of a long term marriage. He argues the trial court improperly considered his future earning capacity as a factor in the overall fairness of the division. He claims the trial court erred in making an adjustment for Social Security benefits that his wife would have received but for her type of federal pension. Carmen Rockwell cross-appeals, arguing that the court erred when it chose the subtraction method to characterize and value her federal pension. We reverse the trial court's use of the subtraction method for pension characterization and valuation but affirm on all other issues and remand for further proceedings.
FACTS
Ά2 Peter and Carmen Rockwell were married from 1978 until 2004, a total of 26 years. Carmen Ά3 Carmen retired in 2002 at age 60, testifying to health concerns that kept her from continuing her employment. She had advanced from a position as a "GS-3" clerk to a "GS-15" executive, for which she earned a $120,000 salary as the head of the Northwest Regional Office of Civil Rights. Because she was enrolled in the Civil Service Retirement System (CSRS), she earned a substantial pension that is in lieu of any Social Security benefits. This pension is now in "pay status." Ά4 In 2004, Carmen filed for dissolution of the marriage. At trial, the parties and their experts presented lengthy testimony regarding Carmen's career and health; Peter's career, job search, and health; the future possible income streams of both parties; the community debts; and the tangible assets available to each. The trial court received evidence on various real and personal properties, including the family home, Carmen's individual retirement account (IRA) and thrift savings plan, Peter's contributory and rollover IRA's, two automobiles, rental proceeds, life insurance policies, Peter's disability insurance policy, frequent flier miles, and Carmen's CSRS pension. Ά6 In addressing the division of the pension, the trial court noted Peter's entitlement to Social Security benefits and their potential to increase, Carmen's lack of Social Security benefits due to her type of pension, and Peter's inheritance funds that he gifted to the community. It accepted the "subtraction method" that Peter's actuary expert used to value Carmen's pension, finding that 92 percent of the pension was community property and 8 percent was Carmen's separate property. The trial court concluded that it was fair and equitable to divide the community property portion of the pension 60 percent to Carmen and 40 percent to Peter, and to award Carmen her separate property portion of the pension. This meant that Peter is to receive 36.8 percent of the gross value of the pension. Ά7 Both parties moved for reconsideration of the oral ruling, filing a motion and response to the same on July 26, 2005. There are no significant differences between what the parties raised in their motions for reconsideration and the issues raised on appeal. The trial court denied Peter's motion for reconsideration in its entirety. The trial court also denied Carmen's motion for reconsideration in its entirety but did revise the proposed order to reflect that the pension was 8 percent Carmen's separate property and 92 percent community property. Ά8 The trial court issued its written findings of fact on August 26, 2005. Based on those findings, the trial court stated "[g]iven the difference in age, earning capacity, physical condition, and that husband had the ability to earn income and save for retirement in the future, it is fair and equitable to divide the community property 60 percent to wife and 40 percent to husband." It also ordered the family home to be sold in order to provide liquidity to both parties. Ά9 Neither party moved for reconsideration of the written findings of fact. Peter filed his notice of appeal on September 26, 2005. Carmen filed her notice of cross-appeal on October 4, 2005. ANALYSIS I. Standard of Review II. Social Security Benefits Ά13 Peter assigns error to the trial court's consideration of Carmen's Social Security benefits. First, he assigns error to the following finding of fact: 2.8. 13.e. Wife is not entitled to receive Social Security benefits as her pension is in lieu of Social Security benefits. The present value of wife's social security benefits is $159,464. The court finds it is fair and equitable to compensate wife in this amount, since husband will receive social security benefits. Ά14 Mr. Kessler, Carmen's expert, testified that Carmen's type of federal pension is in lieu of Social Security. He valued the Social Security that she would have received at $159,404, which was based on a recalculation of updated numbers. This amount was not challenged. He noted that Peter will receive Social Security benefits that will increase from cost-of-living adjustments every year. When asked whether it was reasonable for Carmen to ask the court to deduct the value of her Social Security benefits from the value of the pension for purposes of property division, he replied that it was necessary to ensure fairness: [I]f we were truly trying to have an apples-to-apples analysis, for instance, in the case of Mr. Rockwell who will receive Social Security benefits, we needed to put a value on the Social Security benefit and deduct it from the value of Ms. Rockwell's CSRS benefit that does not entitle her to Social Security benefits. The evidence is sufficient to persuade a fair-minded rational person that the value of Carmen's foregone Social Security, which would have been indivisible separate property, was $159,404. III. Husband's Earning Capacity Ά17 Peter argues the trial court erred when it found that he was capable of earning a salary of at least $70,000 a year. To support this finding, the trial court relied on the following findings of fact: 2.20. 1. Husband is nine years younger than wife and in good health. . . . . 3. Husband has two bachelor's degrees, significant experience and knowledge in a variety of areas and is capable of working and earning at least $70,000 gross per year. Ά19 Peter also argues that the trial court erred when it underestimated his age because its oral ruling stated that he would have seven more years of work until the age of 60. He contends that this results in an inaccurate valuation of his future earnings as a basis for the 60/40 split. We recognize that the trial court, in its oral ruling, stated "[a]nd what I have done in terms of trying to look at the big picture is estimate incomes from him until he is at age 60, so I'm talking about seven years." However, by the end of trial in June 2005, Peter was 54.5 years old. He will be 60 years old on January 25, 2011. This results in 5.5 years of work at an estimated salary of $70,000, rather than 7 years. Peter argued this same issue to the trial court in his motion for reconsideration: "The court indicated that it determined that [Peter] would be able to earn $490,000 in future earnings between now and the time he is 60." Confronted with this factual error, the trial court denied reconsideration. We can infer from this denial that the seven year period was the intended duration, as opposed to age 60 being the intended endpoint. We conclude that the implication in the findings of fact and rejection of Peter's motion for reconsideration is that the trial court estimated that Peter would retire at age 62. This would mean that Peter in fact had seven years in which to earn a $70,000 salary. There is no error. Ά20 In regard to his potential salary, Peter testified that he has bachelor's degrees in mechanical engineering and liberal arts. In 1999, when he was 48, he was laid off. In that last year of employment, he had earned a $72,000 salary and a commission of about $18,000. He testified that in pursuing another job, what he considered suitable for his age and experience was a sales job involving a great degree of technical experience paying a minimum of $70,000. He also testified that during his two-year job search from 2000 until 2002, he only looked for jobs that would pay $70,000 and up. During his testimony, he described his lengthy but unsuccessful job search. He acknowledged that he may have a better chance of finding a position in technical sales if he mounted a nationwide job search. But he was not interested in jobs outside of the Seattle area due to concerns regarding his daughter's health at the time. He stopped seeking employment after the spring of 2002. Ά21 In December 2004, the court ordered Peter to again look for work. According to his testimony, he first pursued leads in technical sales but was discouraged by the lack of positive responses. He then considered becoming a math teacher but was again discouraged by the training required and the low pay scale, which would begin at $38,000 per year. He settled on becoming a real estate agent and joined a real estate firm in May 2005. At the time of trial in June 2005, he had not made any listings or sales, but had incurred business costs. After becoming a real estate agent, he inquired into one or two opportunities in technical sales but did not receive a job offer in that field. During his testimony, he indicated that while his daughter is now an adult and lives in Bellingham, he would prefer to remain in the Seattle area, again due to her health concerns. Ά23 Next, Peter argues that his future earning capacity should not have been considered in dividing the property. Future earning potential "is a substantial factor to be considered by the trial court in making a just and equitable property distribution." In re Marriage of Hall, 103 Wn.2d 236, 248, 692 P.2d 175 (1984). While Peter cites this case as prohibiting the consideration of future earning potential as a divisible asset, the Hall court only declined to offset future earning capacity as an asset against goodwill. Id. Instead, because a spouse has no property interest in the earning capacity of the other spouse, Hall only forbids treating earning capacity as a present asset, placing it among other community assets, and dividing it as property. Kraft, 119 Wn.2d at 448. Further, in considering a party's future earnings capacity, a trial court may consider the age, health, vocational training, and work history of the party. II WASHINGTON FAMILY LAW DESKBOOK § 32.3(4)(a), at 32-19. Ά24 As noted above, the trial court must put the parties in roughly equal financial positions for the rest of their lives. See II WASHINGTON FAMILY LAW DESKBOOK § 32.3(3), at 32-17. This requires considering the combination of the division of property and the expected income and earnings of the parties. And, where one spouse is older, semi-retired, and dealing with ill health, and the other spouse is employable, the court does not abuse its discretion in ordering an unequal division of community property. In re Marriage of Schweitzer, 81 Wn. App. 589, 915 P.2d 575 (1996). Peter was younger, in good health, and employable at a substantial wage. Moreover, substantial evidence showed that Carmen was retired, older, and in poor health. Accordingly, the trial court did not abuse its discretion when it compared Peter's age, health, and employability (and, thereby, future earning capacity) against Carmen's as a basis for its 60/40 split of the community property. Ά25 Peter's final assignment of error in regard to his future earning capacity is based on the following finding of fact: 2.8. 13.f. Husband is entitled to receive Social Security benefits at this time of up to $1,888 (age 70) per month depending upon when he elects to begin receiving the benefit, which benefits will increase in the future from husband's employment. If he retires at age 62 his social security benefit would be $1,078 per month. (Emphasis added.) By emphasizing the underlined language, Peter challenges only that his benefits will increase based on future employment, not the actual valuation of his benefits. But the appropriateness of imputing his income has already been established above. Further, because the value of his Social Security benefits has been set aside and is not part of the equation of equitable division, there is no possible error here. IV. Characterization of Federal Pension Ά26 Peter asserts that the findings of fact regarding the community percentage of the federal pension is erroneous because the court committed a mathematical error. 2.8. 13.l. The court accepts the actuarial analysis of husband's expert Mr. Dallas and finds that the "subtraction method" of valuing the pension is the appropriate method. Pursuant to that method the increase in the benefit during the marriage is $6,194 and therefore 92 [percent] of the retirement benefit is community property and 8 [percent] is separate property. . . . . 13.o. 40 percent of the community property portion of the pension equates to 36.8 percent of the gross value of the pension (calculated as follows: 40 percent of 92 percent). (Emphasis added.) Ά27 Peter contends that the trial court should have characterized the pension as 93.2 percent community property and 6.8 percent separate property, rather than the 92/8 split that was used in the final order. Arguing that this is mathematical error, he is concerned that he will receive about $35 less per month than he should, resulting in a $8,400 shortfall over 20 years. Ά28 Peter submitted two exhibits in which his actuary estimated the community property portion of the pension. Exhibit 71 supported a 93.2/6.8 split. But Exhibit 76, prepared by Peter, supports a 91.8/8.2 split. The trial court orally accepted Peter's actuary's assessment and valuation of the pension for the purposes of its analysis of the 60/40 split. However, in the final order, it accepted a 92/8 split, which was proposed by Carmen. Ά30 In her cross appeal, Carmen assigns error to the trial court's use of the subtraction method, rather than the time rule method, in characterizing her pension as 92 percent community property. She asserts that Washington cases have only used the time rule method, under which the proportion would be 60/40 in her favor. Peter counters that both methods result in the percentage formula that has been encouraged by Washington courts, but neither one has been definitively chosen over the other. Instead, he argues, courts have used the method that best applies to the circumstances of the case and creates the most equitable results. However, he does not cite to any Washington cases that explicitly approve of the subtraction rule method. Even the out-of-state cases he cites to support his "best application to the circumstances" argument reject the subtraction method. Similarly, the Washington cases cited by both Peter and Carmen have used a time rule method or a close variation thereof. See, e.g., In re Marriage of Bulicek, 59 Wn. App. 630, 636-37, 800 P.2d 394 (1990); In re Marriage of Chavez, 80 Wn. App. 432, 434, 436, 909 P.2d 314 (1996); Greene, 97 Wn. App. at 708 (noting that the time rule was the typical formula for apportioning a pension but approving the trial court's use of a "slightly different formula but [that] made the same basic calculation"). Ά33 In Bulicek, the parties were married for 22 years before separation. The husband had continued to work after their dissolution. Bulicek, 59 Wn. App. at 631. The value of his monthly retirement benefits was to increase based on these postdissolution working years. The court used the time rule method to ensure that the wife would receive a certain percentage of the husband's retirement benefits, even though the monthly payout would increase after dissolution. Id. at 638. The court recognized that the husband's prospective increase in retirement benefits was based on the 22 years of community effort supporting his career, performance, and therefore past and future pay increases contributing to his benefit. Bulicek, 59 Wn. App. at 639. Emphasizing that the trial court has wide discretion in awarding property in a dissolution, this court upheld and encouraged the time rule method of dividing pension rights as a means of recognizing the community contribution to such increases. Id. Ά34 The time rule method was also recognized as "the correct formula to determine the community share" of the total pension credits earned by the retiree in 80 Wn. App. at 434, 436. There, the parties' marriage was dissolved in 1986, and the husband retired seven years later. Chavez, 80 Wn. App. at 434-35. Because he was a military pension recipient, after 20 years of service he would be entitled to 50 percent of his base salary, and his pension would increase by another 2.5 percent of his salary (i.e., "service credit") for each additional year of service after 20 years. Id. Due to his 30 years of service, he was entitled to a pension of 75 percent of his base salary. Id. He challenged the decree of dissolution, which had awarded the wife 50 percent of this pension, arguing that his salary at retirement should not be used to calculate the wife's share of the pension because that salary was different from his salary at the time of divorce. Id. at 437. The court disagreed, citing Bulicek's conclusion that benefits increase based on higher salaries made possible by the community effort, and concluded that "increases in pension benefits based on a retiree's higher salary at the time of retirement should be included in the community share." Id. at 437 (emphasis added). The court was careful to note however, that the wife's share of the pension should not be increased due to the additional "service credits" that the husband earned subsequent to the divorce. Id. at 437. Ά35 We draw on the above principles to conclude that the trial court erred when it approved the use of the subtraction rule to characterize Carmen's federal pension. If postdissolution pension increases are apportioned to make an equitable division, increases in pensions due to premarriage efforts should also be apportioned to make an equitable division. Like the court in Bulicek, we recognize that Carmen's salary increased substantially during the marriage. However, such increases would not have occurred but for her first 16 years in the federal government. Similar to the indivisible "service credits" in Chavez, increases due to her years of service prior to the marriage should not be divisible community property. The subtraction rule disproportionately undervalues those early years by freezing the value of Carmen's front-end contribution and disallowing the separate interest to benefit from any income increases that became possible only because of her earlier years of service. There is a sharp contrast between the subtraction method, which characterizes the pension as only 8 percent separate property and 92 percent community property, and the time rule method, which characterizes the pension as 38 percent separate property and 62 percent as community property. When the trial court's 60/40 division of the property is applied to the community property of the pension, using the time rule method means that Peter will receive 24.4 percent of the gross pension and Carmen will receive 74.6 percent of the gross pension. This division more appropriately values Carmen's first 16 years of work for the federal government. Ά36 Washington cases have only used the time rule method, not the subtraction method. We conclude that the trial court erred when it used the subtraction method and reverse and remand with instructions to characterize Carmen's federal pension according to the time rule method. Ά37 Having concluded the pension was improperly characterized, we need not reach Peter's assignments of error relating to mathematical error in the percentages assigned to community and separate interests in the pension. V. Overall Division of Property Ά38 Peter challenges the overall division of the property. He challenges the following findings specifically: 2.8. 13.m. The court accepts the actuarial analysis of husband's expert and finds that although husband is nine years younger than wife and it is more likely than not that wife will predecease him . . . 13.n. The court finds that it is fair and equitable to divide the community property portion of the pension 60 [percent] to wife and 40 [percent] to husband, and to award wife her separate property portion of the pension. . . . . 2.20. 5. Given the difference in age, earning capacity and physical condition, and that husband had the ability to earn income and save for retirement in the future, it is fair and equitable to divide the community property 60 [percent] to wife and 40 to husband. . . . . 8. The distribution of property and liabilities as stated herein and as set forth in the Decree is fair and equitable [repeated as a Conclusion of Law at 3.3.2.] Based on these alleged factual errors, Peter also assigns error to provisions 3.2, 3.3, 3.14.1, and 3.14.2 in the decree of dissolution which divide the property. Ά39 Altogether, the trial court concluded that "the basics of the ruling are a 60/40 split," based on the difference in age, earning capacity, physical condition, and that Peter has the ability to earn income and save for retirement in the future. The "trial court has broad discretion in distributing the marital property, and its decision will be reversed only if there is a manifest abuse of discretion." Griswold, 112 Wn. App. at 339. In light of the discretion afforded to the trial court in determining what will be a fair and equitable distribution, and the factors that it can appropriately consider, we conclude that there was no abuse of discretion in making this final distribution. Absent the error in characterizing the federal pension, we affirm the trial court's division of the property as fair and equitable. VI. Attorney Fees Ά40 Both parties assert the right to attorney fees on appeal under RCW 26.09.140 and RAP 18.1. We award Carmen attorney fees and costs subject to the provisions of RCW 26.09.140 and RAP 18.1. Ά41 We reverse the trial court's characterization of Carmen's federal pension and affirm on the other issues appealed. We remand for further proceedings consistent with this opinion. GROSSE and DWYER, JJ., concur.