In Re The Marriage Of: Suresh Philip And Jaya P. Philip ( 2014 )

FILED
November 20, 2014
In the Office of the Clerk of Court
W A State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
In re the Marriage of: )
) No. 32041-3-111
SURESH PHILIP, )
)
Appellant, )
)
and )
) UNPUBLISHED OPINION
JAYAP. PHILIP, )
)
Respondent. )
SIDDOWAY, C.J. Dr. Suresh Philip appeals the trial court's division of his and
his ex-wife's assets at the conclusion of their marital dissolution trial. He challenges the
trial court's adjustments to the parties' distributions to account for $251,000 of
community assets that Dr. Philip used to repay his parents for two long-outstanding
separate property loans, a few months before he filed for divorce.
Dr. Philip characterizes the court's adjustment as a right of reimbursement and
argues that it was improperly imposed on the merits and in its amount. The
characterization of the adjustment as a right of reimbursement is challenged by Ms.
Philip. We conclude that however characterized, the adjustment was correctly calculated
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to accomplish the trial court's stated objective and that Dr. Philip fails to demonstrate an
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abuse of the trial court's discretion. We affirm.
FACTS AND PROCEDURAL BACKGROUND
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ii Dr. Suresh Philip and Jaya Philip married in 1990. Dr. Philip came into the
I marriage with a $92,000 debt to his parents-money he borrowed to help finance his
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medical education in Nigeria. The loan required repayment at a four percent interest rate,
compounded annually.
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i After getting married, Dr. Philip and Ms. Philip moved to North America. Dr.
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J Philip spent a year in Canada preparing to take the several medical examinations required
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Ii to practice medicine in the United States or Canada. Ms. Philip lived with her parents in
Connecticut during that time frame, traveled to visit him, and provided financial support
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I toward his expenses. Dr. Philip allegedly borrowed another $28,000 from his parents
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f while living in Canada. Ms. Philip claims to have known nothing about either loan
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before Dr. Philip filed for divorce. Dr. Philip agreed at trial that both loans were his
separate property.
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I In September 2010, Dr. Philip repaid the loans to his parents in their entirety: with
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interest, he paid them a total of $251 ,000. He used community funds from the couples'
Vanguard investment account. The payment was made without Ms. Philip's knowledge
1j or consent. Two months later, Dr. Philip filed for divorce. The existence of the loans
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and the fact that he had liquidated a quarter million dollars of community investments to
repay them came to light during a divorce mediation.
The dissolution case proceeded to a three-day trial, at the conclusion of which Dr.
Philip proposed a fifty-fifty split of the parties' property. While a written summary of the
proposed division that Dr. Philip's lawyer handed to the court during closing argument is .
not in our record, I the lawyer argued that following a fifty-fifty split, Dr. Philip should be
treated as having received a prior distribution of $115,000 in order to account for his use
of community funds to repay the separate loan. Rounded, $115,000 was one-half of the
$251,000, less a $10,000 "benefit" to Ms. Philip from his largely parent-financed medical
education. 2 Report of Proceedings (RP) at 165-66.
For her part, Ms. Philip questioned whether the $251,000 obligation to Dr. Philip's
parents was even bona fide, characterizing it as a "golden parachute" for Dr. Philip, and
part of his "divorce planning." 2 RP at 182-83. In addition to seeking an adjustment for
the withdrawal from the Vanguard account, she sought a judgment for some $120,000 in
arrears on mortgage and child support payments that Dr. Philip had been court-ordered
(but failed) to pay, and asked the court to award her continuing spousal maintenance, find
I Dr. Philip did not designate as clerk's papers any of the trial exhibits or any other
documents reflecting individual values of the parties' assets. While most of the values
were recapped by the trial court when it announced its oral decision, notably lacking is a
definitive figure on the exact value of the Vanguard account at the time of trial.
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that the doctor was voluntarily underemployed, and impute $330,000 a year in income to
him for purposes of calculating child support.
In announcing its oral decision the day after closing arguments, the court divided
most of the parties' assets fairly evenly, but awarded Ms. Philip the entire remaining
value of the parties' Vanguard account. Because the parties dispute what the trial court
had in mind in its handling of the Vanguard account, we quote all that it had to say on the
subject.
[THE COURT:] Okay, I have to deal with the two-hundred-and­
fifty-one-thousand dollar debt, or dollars that were paid to Mr. Philip[']s
parents. That debt and I looked at the promissory note, uh, that was a
separate property debt he brought into the marriage .... The two-hundred­
and-fifty-one-thousand dollars is a separate debt for Mr. Philip[]. In
addition there was a total of approximately a hundred-and-twenty-thousand
dollars of unpaid child support, spousal support and mortgages. Those are
from the temporary orders. The May, has to you know pay what he can,
that I didn't accept that argument. That was an order, he was obligated to
pay that. She's entitled to reimbursement for that.
2 RP at 214. Ms. Philip's lawyer at that point asked whether the trial court would enter.a
$120,000 judgment for the arrears in court ordered payments. The following colloquy
and further ruling followed:
MR. TEL QUIST [Dr. Philip's lawyer]: No.
THE COURT: No.
MR. TINDELL [Ms. Philip's lawyer]: It goes onto something
else[?]
THE COURT: No, I'm still going. I'm going, what I'm going to do
and that by the way is through this May, what I'm going to do is award the
Vanguard account to her then she gets no judgment against him and she is
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compensated for the two~hundred~and-fifty~thousand that was paid of
community assets that was paid to his parents.
MR. TELQUIST: Your Honor, did you, isn't one-half of that
community, the two-hundred-and-fifty~thousand dollars, I did argue that
one-half, it is Doctor Suresh's by community property law. So you're
giving her the entire two~ fifty?
THE COURT: It's all his separate debt.
MR. TELQUIST: I understand but he used community funds of
which he owns one half. I just want to make sure I'm clear.
THE COURT: Okay, yet he took community funds and paid his
separate debt and uh, it wasn't, you know the community funds he took and
he took em all, they were community funds, they were applied to a separate
property debt. So he doesn't get credit for half of it even. He just, and I
can understand why he did it. I don't have any problem with him doing it.
But uh, but it's a community debt. Okay there's the issue of spousal
maintenance. Uh, I'm going to order spousal maintenance of fifteen­
hundred dollars through the rest of this year. Okay, that means that she will
have had fifteen-hundred spousal maintenance for three years. By that time
it will give her an opportunity to sell the house ... and she's getting
considerably more wealth then he's getting in terms of having the ability to
pay her own way. So-
MR. TINDELL: Urn, okay there's no judgment I understand that.
THE COURT: There will be no judgment against him.
MR. TELQUIST: I just, my two forecast [sic] Your Honor, I don't
think the analysis is correct, I think he can use his portion of the community
to pay his separate debt, one~halfhe is entitled to.
THE COURT: That's fine.
MR. TELQUIST: But we can address that later.
THE COURT: Okay.
MR. TINDELL: Well regardless of that, the court still has the
discretion to make a disproportionate-
THE COURT: Well I've made my decision.
MR. TELQUIST: Right.
THE COURT: And Mr. Telquist is right.
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MR. TELQUIST: We'll address that later. Okay.
THE COURT: So we're in recess .
! 2 RP at 215-18.
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When proposed findings, conclusions, and a decree were presented several months
later, Dr. Philip requested only one modification to the asset distribution announced in
the court's oral ruling: he asked the court to make an adjustment in Dr. Philip's favor to
account for $60,000 that had been distributed to Ms. Philip from the Vanguard account
during the pendency of the divorce. Dr. Philip was given a $30,000 adjustment in his
favor on account of that distribution.
Dr. Philip timely appealed.
ANALYSIS
Dr. Philip assigns error to the trial court's "granting the community a right of
reimbursement" for the $251,000 paid by Dr. Philip to retire his separate debts and to the
trial court's "awarding the full community 'right of reimbursement to Ms. Philip alone."
Br. of Appellant at 3 (capitalization omitted). He argues that "[a] right of reimbursement
is based on equitable principles" that "does not arise as a matter of right merely because
community funds were used to satisfy a separate obligation." Id. at 10-11. As equitable
grounds cutting against a right of reimbursement, he argues that Dr. Philip had the
statutory right to manage and control community funds during the existence of the
marital community, that he did not breach a fiduciary duty in repaying the debt, and that
Ms. Philip received a reciprocal benefit from Dr. Philip's parents' financing of his
medical education. Assuming grounds existed for imposing a right of reimbursement, he
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argues that the trial court erred in "reimbursing Ms. Philip for the entire $251,000.00."
Id. at ii (capitalization omitted).
Ms. Philip's overarching response is that the trial court did not impose a right of
reimbursement on account of Dr. Philip's repayment of the loan, it simply took the
repayment into consideration in making an equitable division of the property. We first
1 address the dispute over the characterization of the adjustment and then tum to the
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f arithmetic dispute over its amount.
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Right ofreimbursement or just and equitable distribution
A variety of circumstances have been identified by Washington decisions in
which, as a matter of fairness, one spouse should have a right of reimbursement upon
dissolution of the marriage because the other spouse, during marriage, appropriated
community assets to his or her separate benefit or subjected them to loss. Like its
division of property, a trial court's recognition ofa right of reimbursement is reviewed
for abuse of discretion. In reMarriage ofMiracle, 101 Wash. 2d 137, 139,675 P.2d 1229
(1984) (review of right of reimbursement); In re Marriage ofTower, 55 Wash. App. 697,
700, 780 P.2d 863 (1989) (review of distribution of property). But a right of
reimbursement is reviewed for its theoretical basis and factual support in ways that a
division of property is not, and Dr. Philip argues that we should engage in that more
critical review. Ms. Philip points out that the trial court never mentioned a "right of
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reimbursement" and asks us to review only whether the trial court's division of assets
was just and equitable.
In an action for dissolution, the trial court must distribute the parties' assets and
liabilities in ajust and equitable manner. RCW 26.09.080; In re Marriage o/Kraft, 119
Wash. 2d 438, 449, 832 P.2d 871 (1992). "The key to an equitable distribution of property
is not mathematical preciseness, but fairness." In re Marriage o/Clark, 13 Wn. App.
805,810,538 P.2d 145 (1975). This requires the court to exercise discretion and
consider all circumstances surrounding the marriage. Id. Ms. Philip argues that her ex­
husband's use of community funds to repay his parents was simply one circumstance that
could be considered in dividing the parties' assets. Her position finds support in In re
Marriage o/White, 105 Wn. App. 545,554,20 P.3d 481 (2001), in which the court
pointed out that a right of reimbursement "is rarely important in a dissolution action,
because with or without it the court has broad discretion when distributing property and
debts; a dissolution court can award property to either spouse in the absence of such a
right, or a dissolution court can decline to award property to either spouse in the presence
of such a right."
Yet as a general rule, each spouse has an equal right to solely manage the
community estate. RCW 26.16.030. In a dissolution action, trial courts do not review
and make adjustments for every selfish, improvident, or otherwise objected-to use of
community funds during marriage by the husband or the wife. If the joinder of both
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spouses in a transaction is not required by statute, proof that one spouse refused to
consent to another spouse's use of community funds does not support a conclusion that
the expenditures were outside the scope of the acting spouse's authority; "[w]here the
facts show that husband and wife simply disagree on a matter involving management of
community property, the decision of the acting spouse is controlling." In re Marriage of
Schweitzer, 81 Wn. App. 589,598,915 P.2d 575 (1996), aff'd in part on other grounds,
132 Wash. 2d 318, 937 P.2d 1062 (1997); RCW 26.16.030 (identifying exceptions to a
spouse's equal right to solely manage and control community property).
Accordingly, if a specific adjustment made by a trial court in dividing assets is
based on its conclusion that one spouse is entitled to be compensated for a use of
community assets by the other spouse that-while within the power of the acting spouse,
was not made in the community interest-then the party burdened with the adjustment
has a right to review for abuse of discretion, including reviewing whether the court
misunderstood or misapplied the law. The party is entitled to raise that challenge
whether the trial court characterized itself as imposing a right of reimbursement or as
arriving at a just and equitable distribution.
The facts and the law support the adjustment
"A disposition of community funds is within the scope of authority of the acting
spouse so long as he or she is acting 'in the community interest.'" Schweitzer, 81 Wn.
App. at 597 (quoting Hanley v. Most, 9 Wn.2d 429,461, 115 P.2d 933 (1941». Where
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he is not, a right of reimbursement can arise. It can arise if one spouse uses community
funds to maintain or increase the value of separate property. Connell v. Francisco, 127
Wn.2d 339,351,898 P.2d 831 (1995) (citing In re Marriage ofPearson-Maines, 70 Wn.
App. 860, 869-70, 855 P.2d 1210 (1993); Harry M. Cross, Community Property Law in
Washington (Revised 1985); 61 WASH. L. REv. 13,61,67 (1986)). It can also arise if one
spouse breaches his or her fiduciary duty. Where a spouse uses community property
secretly and without any benefit to the community, he or she breaches a fiduciary duty.
Cf In re Estate ofMadden, 176 Wash. 51, 54, 28 P .2d 280 (1934) (given the husband's
confidential relationship to his wife, "'the burden would be upon [him] to show the
fairness of the transaction, the adequacy of the consideration, and the absence of fraud
and undue influence'" (quoting Beals v. Ares, 25 N.M. 459, 185 P. 780, 794 (1919))).
Dr. Philip's opening brief anticipates being accused of breaching a fiduciary duty.
He tries to preempt the argument by characterizing the trial court's oral statement that '''I
can understand why he [repaid the loans]. I don't have [any] problem with him doing it'"
as a verity, because it was a finding to which Ms. Philip did not assign error. Br. of
Appellant at 15 (emphasis omitted) (quoting 2 RP at 216). The court's oral statement
was never reduced to a finding, however. It was made following closing arguments in
which Dr. Philip conceded that a property adjustment should be made in Ms. Philip's
favor on account of his use of community funds to pay the loans. It was made after the
trial court had already announced Ms. Philip would be "compensated for the two­
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hundred-and-fifty-thousand that was paid of community assets that was paid to his
parents." 2 RP at 215. Nothing in the court's oral ruling detracts from the court's clear
legal and factual basis for making the adjustment.
Dr. Philip also argues that even ifhis undisclosed use of community funds to
repay a separate debt might give rise in isolation to a right of reimbursement, it did not
support reimbursement here because Ms. Philip received a reciprocal benefit from Dr.
Philip's parents' financing of his medical education. Washington cases hold that because
a right of reimbursement is an equitable remedy intended to prevent unjust enrichment of
the separate owner at the cost of the community, a community that receives a reciprocal
benefit will not be entitled to reimbursement. In re Marriage ofLindemann, 92 Wn.
App. 64, 74, 960 P .2d 966 (1998). Whether to offset a right of reimbursement against a
reciprocal benefit is discretionary. Connell, 127 Wash. 2d at 351 (a court "may" offset the
community's right of reimbursement against any reciprocal benefit). The court is not
required to recognize a reciprocal benefit as an offset if it determines that an offset is not
fair and equitable.
In announcing its decision to make an adjustment, the trial court commented on
the fact that Ms. Philip, an electrical engineer, had a bachelor's degree, and while that
might have cost less to acquire than her husband's medical degree, "she conceivabl[y]
had the same thing[,] but that wasn't a debt she brought into the marriage." 2 RP at 214.
The court also heard evidence that Ms. Philip had financially supported Dr. Philip
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through part of his medical studies. The court did not abuse its discretion in rejecting Dr.
Philip's argument that Ms. Philip received a reciprocal benefit.
The parties' arithmetic dispute
Finally, Dr. Philip contends that even if the trial court enjoyed the authority to
adjust the division of marital assets to account for his application of community funds to
I a separate debt, it mistakenly doubled the size of the appropriate adjustment by failing to
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recogni;ze that it is the community, not the complaining spouse, that enjoys the right of
j reimbursement.
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There are different ways to account for the type of adjustment that was required
here. Properly applied, all lead to the same result. We will start first with the approach
that Dr. Philip insists upon: treat the adjustment as a right of reimbursement that belongs
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to the community.
As the trial court observed, Dr. Philip applied the full $251,000 to a separate debt.
To apply the "reimbursement to the community" approach correctly, then, the court must
require that he repay the $251,000 to the community from his separate funds-otherwise,
Ms. Philip is shortchanged. We engage in a three-step process: first, divide all the
community funds so that Dr. Philip has "separate" assets to repay with; second, cause
him to repay the required amount to the community; and third, divide that community
asset for a second distribution. The following illustration assumes that the entire value of
the parties' assets other than the Vanguard account was $1 million (even though it was
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more), the entire value of the Vanguard account was $250,000 (even though it was
more),2 and that the court divided the assets fifty-fifty (it did not). Applying Dr. Philip's
preferred approach, the adjustment would be made as follows:
Husband Wife
All non-Vanguard assets $500,000 $500,000
Vanguard account $125,000 $125,000
Initial distribution His: $625,000 Hers: $625,000
Postdistribution repayment ($250,000) Not applicable
to community from
distributed, separate assets
Second distribution, from $125,000 $125,000
the community's
reimbursement
Total assets after both $625,000 - $250,000 + $625,000 + $125,000 =
distributions $125,000 = $500,000 $750,000
2 The Vanguard account allocated to Ms. Philip appears to have been worth
considerably more than $250,000. The trial court was clear that Ms. Philip was receiving
the account not only to compensate for the loan repayment but also to address the
$120,000 arrears in Dr. Philip's court ordered payments. An additional adjustment could
be justified by the fact that Dr. Philip took his $250,000 in community assets in
September 2010, almost three years before the decree was entered dividing the parties' r
other assets. And in awarding her only seven more months' spousal maintenance and
refusing to impute as much income to Dr. Philip for child support calculation purposes as
Ms. Philip had requested, the trial court commented that by year-end, ..it will give her an
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opportunity to sell the house ... and she's getting considerably more wealth th[a]n he's
getting in terms ofhaving the ability to pay her own way." 2 RP at 216 (emphasis
added). Dr. Philip does not assign error to the trial court's distribution for any reason
other than those that we identify and address.
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There was another way of making a reimbursement adjustment that would have
t recognized that since half of the $251,000 that Dr. Philip withdrew from the Vanguard
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Philip for the half that was hers. But correctly analyzed, a half-size payment belonging
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) entirely to Ms. Philip would have to be paid directly to her, not to the community-
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otherwise, it would be reduced by half twice. Using the same assumptions, this leads to
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the same result:
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Husband
Wife
1 All non-Vanguard assets $500,000
$500,000
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Vanguard account $125,000
$125,000
Initial distribution His: $625,000
Hers: $625,000
Postdistribution adjustment ($125,000) to be paid to W
$125,000 rec'd from H
Total assets after adjustment $500,000
$750,000
reimbursement
The trial court preferred to make the desired adjustment (and others) by giving Ms.
Philip the Vanguard account as part of the distribution. To get her to the same result, he
had to give her at least $250,000 in value from that account. We apply the judge's
approach and the same assumptions:
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j Husband
Wife
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I All non-Vanguard assets $500,000
$500,000
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l Vanguard account $0
$250,000
Total distribution His: $500,000
Hers: $750,000
Post distribution adjustment Not applicable
Not applicable
Total assets after adjustment $500,000
$750,000
The allocation of at least $250,000 in community assets from the Vanguard
account that Ms. Philip received in the property division in 2013 was the proper
adjustment. The reason that twice as much must be allocated to Ms. Philip if it is done as
part of the property division rather than as a postdivision charge to Dr. Philip is that the
property being divided is already half hers; she's being compensated with ~~their"
property. It is only if the adjustment is made after the distribution that she has already
received "her" half of the community property. At that point, she is entitled to be
compensated only for "his" half, with "his" property.
The court did not err.
Attorney foes
Ms. Philip requests attorney fees pursuant to RAP 18.9(a), characterizing Dr.
Philip's appeal is frivolous. "An appeal is frivolous if it presents no debatable issues
upon which reasonable minds could differ and is so lacking in merit that there is no
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possibility of reversal." Eagle Sys., Inc. v. Emp'tSec. Dep't, 181 Wash. App. 455, 462,
326 P.3d 764 (2014).
Whether or not the court created a right of reimbursement was a debatable issue.
We decline to award fees.
Affirmed.
A majority of the panel has determined that this opinion will not be printed in the
Washington Appellate Reports but it will be filed for public record pursuant to RCW
2.06.040.
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WE CONCUR:
Brown, 1.
Lawrence-Berrey, J.
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