In Re Marriage of Rockwell

Citation: 170 P.3d 572Docket: 56954-6-I

Court: Court of Appeals of Washington; October 19, 2007; Washington; State Appellate Court

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Peter Rockwell appeals a trial court's 60/40 property division in the dissolution of his 26-year marriage to Carmen Rockwell, claiming the court improperly factored in his future earning capacity and miscalculated adjustments related to Carmen's social security benefits due to her federal pension. Carmen cross-appeals, asserting that the court's subtraction method for valuing her pension was erroneous. The court reversed the pension valuation method but upheld other decisions, remanding for further proceedings.

Carmen worked in federal civil service for 16 years before their marriage and continued for another 24 years, ultimately retiring at age 60 due to health issues. She held a significant position, earning a $120,000 salary and accumulating a substantial pension without social security benefits due to her enrollment in the Civil Service Retirement System (CSRS). Peter, an engineer with degrees in mechanical engineering and liberal arts, was laid off at age 48 and struggled to find employment thereafter. The trial included extensive testimony regarding both parties' careers, health, potential future income, community debts, and assets, including their home, retirement accounts, and Carmen's pension. The court acknowledged and adjusted for the value of social security benefits Carmen would have received had she not been enrolled in the CSRS during its oral ruling, which was reflected in its written findings.

The trial court addressed the division of Peter and Carmen's pension, determining that 92 percent of Carmen's pension was community property and 8 percent was her separate property, based on the "subtraction method" used by Peter's actuary expert. The court decided to divide the community property portion, allocating 60 percent to Carmen and 40 percent to Peter, resulting in Peter receiving 36.8 percent of the pension's gross value. Both parties filed motions for reconsideration on July 26, 2005, which raised similar issues to those on appeal; however, the trial court denied both motions. The court later revised its order to specify the pension division but maintained its initial ruling. Written findings of fact were issued on August 26, 2005, emphasizing the differences in age, earning capacity, and financial stability between the parties to justify the division. The court also ordered the family home to be sold for liquidity. Neither party sought reconsideration of the written findings. Peter filed a notice of appeal on September 26, 2005, and Carmen filed a cross-appeal on October 4, 2005. The appellate courts will apply a substantial evidence standard of review to the trial court's findings, meaning that as long as substantial evidence supports the findings, they will not be overturned. The reviewing court will not reweigh the evidence or assess witness credibility.

The trial court's property distribution in a dissolution action is anchored in statutory requirements that mandate consideration of several factors: the nature and extent of community and separate property, the marriage's duration, and the economic circumstances of each spouse at the time of property division (RCW 26.09.080). The court aims for a "just and equitable" distribution, exercising broad discretion which can only be reversed for manifest abuse, defined as decisions made on untenable grounds. A significant economic disparity resulting from the decree may indicate such abuse. While equal division of community property is not mandated, in marriages lasting 25 years or more, courts generally strive to achieve roughly equal financial positions for the parties. The longer the marriage, the more likely a disproportionate distribution may occur, particularly if one spouse is older or in poor health. 

In a specific case, Peter contested the trial court's handling of Carmen's social security benefits, particularly the finding that Carmen would not receive social security due to her pension being in lieu of benefits. The court found the present value of Carmen's social security benefits to be $159,464, compensating her accordingly since Peter would receive social security benefits. Expert testimony indicated that Carmen's pension should be valued against the social security benefits Peter would receive, reinforcing the need for fairness in property division. The valuation of Carmen's foregone social security, determined to be $159,404, was unchallenged and deemed necessary for an equitable assessment.

Peter contests the trial court's decision to compensate Carmen based on her federal pension, which substitutes for social security. The law prohibits the valuation and distribution of social security benefits, as established in In re Marriage of Zahm and related cases. Although the trial court cannot assign a future value to social security for property distribution purposes, it can consider the potential benefits in assessing the economic circumstances of both parties. Carmen's expert testified that she would have received social security benefits if not for her federal pension. The trial court adjusted Carmen's community property share by this amount, treating it akin to social security, while Peter's social security value was not considered. Neither party's social security benefits were included in the asset division calculation. This approach aimed to ensure equitable treatment of both parties' economic futures. The court concluded that its calculations were valid under Zahm, allowing for the consideration of Carmen's lost social security benefits. 

Additionally, Peter challenges the trial court's finding that he could earn at least $70,000 annually. The court based this assessment on Peter’s youth, health, and educational qualifications, noting he is younger than Carmen and possesses two bachelor's degrees and relevant experience. While there is a minor discrepancy in the exact age difference, it does not constitute a factual error warranting correction.

Peter contends that the trial court made an error in estimating his future earnings by incorrectly assuming he had seven more years of work until age sixty, rather than the accurate 5.5 years until he turns sixty on January 25, 2011. The court had initially indicated Peter would earn $490,000 from now until age sixty, but denied reconsideration of this ruling despite Peter's argument regarding the miscalculation. The trial court's findings imply that Peter would retire at age sixty-two, thereby supporting the seven years of projected earnings at a salary of $70,000.

Peter, who has bachelor’s degrees in mechanical engineering and liberal arts, was laid off in 1999 at an annual salary of $72,000 plus commissions. He spent two years searching for jobs, only considering positions paying a minimum of $70,000, yet he was discouraged by the lack of responses and opted not to search outside the Seattle area due to his daughter's health concerns. After a court order in December 2004 to seek employment, he attempted roles in technical sales but faced challenges and eventually became a real estate agent in May 2005, although he had not made any sales by trial time in June 2005.

Although Peter expressed a preference to remain in the Seattle area, the court found that he had the qualifications to pursue higher-paying jobs elsewhere and that his concerns did not unduly limit his job search. The trial court's findings regarding Peter's earning potential were deemed credible and supported by substantial evidence, confirming that he could work and earn a salary of $70,000 per year.

Peter contends that the trial court improperly considered his future earning capacity in the property division. While he cites *In re Marriage of Hall* to argue that future earning potential should not be treated as a divisible asset, the Hall decision specifically prohibits offsetting future earning capacity against goodwill, not excluding it from property division entirely. The court may assess factors such as age, health, vocational training, and work history when evaluating a party's future earnings capacity to ensure equitable financial positioning for both parties. In cases where one spouse is older and semi-retired with health issues, and the other is younger and employable, the court retains discretion to order an unequal property division. In this instance, the trial court's 60/40 split was justified given Peter's favorable employment status compared to Carmen's circumstances.

Peter's challenge regarding his Social Security benefits focuses on the future increase tied to his employment, which does not affect the court's established imputation of income. The trial court correctly excluded the value of his Social Security benefits from equitable division considerations. 

Additionally, Peter disputes the characterization of the community percentage of his federal pension, claiming a mathematical error in the court's findings. The court accepted the valuation method proposed by his expert, determining that 92 percent of the pension benefit accrued during the marriage is community property. Peter argues this should be classified as 93.2 percent community property instead, leading to concerns over a minor monthly shortfall that could accumulate significantly over time.

Peter presented two exhibits estimating the community property portion of his pension, with Exhibit 71 suggesting a 93.2/6.8 split and Exhibit 76 proposing a 91.8/8.2 split. The trial court accepted Peter's actuary's assessment for analysis of a 60/40 split but ultimately ordered a 92/8 split based on Carmen's proposal. When parties present conflicting valuation evidence, the court may select any value within that range. The final split aligns with the evidence submitted by both parties, and Peter's motion for reconsideration on this point was denied, indicating a deliberate choice by the court without mathematical error. 

In her cross-appeal, Carmen contested the trial court's use of the subtraction method for determining her pension as 92 percent community property, arguing that Washington cases traditionally use the time rule method, which would yield a 60/40 split in her favor. Peter countered that both methods yield acceptable results, but did not provide direct support from Washington case law for the subtraction method. Both parties cited cases that predominantly utilized the time rule method. The time rule method attributes pension benefits as deferred compensation, proportionally classifying the portion earned during marriage as community property. The trial court maintains broad discretion in property distribution during dissolution proceedings, with the time rule method typically calculating the community share based on the years of marriage relative to total years of service. The Bulicek case illustrates this application, ensuring that the spouse receives a percentage of retirement benefits reflective of community contributions, even if the benefits increase post-dissolution.

The trial court has broad discretion in property division during dissolution, and the time rule method for dividing pension rights is endorsed as a means to acknowledge community contributions to pension increases. The court referenced *Marriage of Chavez*, where a husband challenged the division of his military pension, arguing that the calculation should not consider his salary at retirement, which differed from his salary at divorce. The court upheld that increases in pension benefits due to higher retirement salaries should be included in the community share, but noted that post-divorce service credits should not increase the wife’s share. 

In the current case, the court found that the trial court incorrectly used the subtraction rule to characterize Carmen’s federal pension. It emphasized that increases due to pre-marriage service should also be equitably divided. The subtraction method undervalued Carmen's early contributions, freezing their value and denying her the benefit of subsequent salary increases. The time rule method, in contrast, provided a more equitable division of the pension, attributing 38 percent as separate property and 62 percent as community property, resulting in Carmen receiving 74.6 percent of the gross pension. The court concluded that the trial court erred by applying the subtraction method and reversed the decision, instructing the use of the time rule method for characterizing Carmen's federal pension. Peter's other claims regarding mathematical errors were deemed unnecessary to address after this conclusion.

Peter contests the division of property determined by the trial court, specifically challenging findings regarding the actuarial analysis of his expert, which indicated a higher likelihood of his wife predeceasing him due to their age difference. The court decided on a 60/40 division of community property from the pension, favoring the wife, and concluded that this distribution is fair and equitable based on factors like age, earning capacity, and physical condition. The court emphasized that Peter's ability to earn future income justified this division. The trial court's broad discretion in property distribution means its decisions are only reversible in cases of manifest abuse of discretion. Consequently, the appellate court found no such abuse and upheld the trial court's property division as fair, aside from reversing its characterization of Carmen's federal pension. Both parties claimed the right to attorney fees on appeal, with the court awarding fees to Carmen in accordance with relevant statutes. The case is remanded for further proceedings aligned with this ruling, and the appellate court clarified that it could reference the trial court's oral opinion to elucidate its formal findings.