Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 04D010972, Thomas R. Murphy, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Law Offices of Marjorie G. Fuller, Marjorie G. Fuller and J.E.T. Rutter for Appellant.
Law Offices of William J. Kopeny and William J. Kopeny for Respondent.
OPINION
RYLAARSDAM, ACTING P. J.
The trial court entered a judgment dissolving the 14-and-one-half year marriage of Colleen J. Pilz (wife) and Bradford J. Pilz (husband). The judgment also resolved issues concerning characterization and division of the parties’ assets, plus child custody and child and spousal support. In this appeal, husband contends the court erred by finding all of the distributions received during the marriage from his separate property vehicle leasing business constituted community property. As a result, he also argues the court erred in finding a community interest in other assets into which those distributions were traced. In addition, husband claims the court erred by finding contributions made to a simplified employee pension plan individual retirement account (SEP IRA) by his other separate property business constituted community property.
We conclude the trial court properly found the SEP IRA constituted a community asset. But husband’s first assignment of error has merit. Thus, we reverse the judgment’s property division and remand the matter for further proceedings.
FACTS
The parties married in June 1990 and separated in December 2004. Husband is the sole owner of two businesses. He created Promark Advertising, Inc. (Promark) in 1981 and incorporated it in 1987. He formed and incorporated Sunnybrook Leasing, Inc. (Sunnybrook) as a Subchapter S corporation in 1987.
Promark developed promotional materials for manufacturers of motor vehicles and motor vehicle parts, and transported and displayed the materials at conventions and sporting events held around the country. Sunnybrook purchased vehicles and other equipment which it leased to Promark, its only customer. Sunnybrook operated from the same location as Promark. Decisions concerning what equipment should be purchased were made by husband after receiving input from Promark’s employees.
Both parties worked for Promark and were paid for their services. During the marriage husband received nearly $6.3 million in wages from Promark. In addition, Promark created a SEP IRA for husband and the business’s other employees and made contributions to these accounts.
Sunnybrook never had any employees and never paid anyone for services rendered to it. However, during the marriage, husband and wife performed work for Sunnybrook, paying the purchase price for vehicles it acquired, collecting lease payments from Promark, signing checks, paying motor vehicle licensing fees, maintaining insurance on the leased vehicles, and completing quarterly tax reports based on documentation submitted by Promark’s employees. Neither party received compensation from Sunnybrook for their efforts.
Because of Sunnybrook’s designation as a Subchapter S corporation for tax purposes, during the marriage husband received dividend distributions from it. These distributions were deposited into an account at Mitsui Manufacturers Bank husband had opened before marriage. Evidence presented at trial reflected husband used funds from this account to: (1) Purchase a split dollar life insurance policy from Promark; (2) make mortgage payments on husband’s residence; and (3) make deposits into accounts held at Salomon Smith Barney.
PROCEDURAL BACKGROUND
The parties and the court agreed to bifurcate and initially try certain issues, including husband’s reasonable compensation, the extent of any community interest in his businesses, and the characterization of his SEP IRA. After seven days of hearings over a nearly three-month time span, the parties submitted closing arguments in the form of written briefs.
On June 22, 2007, the court issued a document entitled “statement of decision.” (Bold and capitalization omitted.) The court agreed with husband’s forensic accountant that the community had no interest in Promark, but rejected the claim husband had been overcompensated for his services to the business. It found husband “had exclusive control of Promark” and “determined his wages and benefits, ” and held “no case law or statutory authority... allow[ed] a court to... allocate retroactively a portion [of the marital wage compensation] to a separate estate.” Thus, the court ruled there was “no legal or equitable reason to treat [husband’s] wages and benefits [including the SEP IRA contributions] other than as community property.”
Citing his overcompensation claim and arguing the community spent only a “minimal” amount of “time and services dedicated to the operation of Sunnybrook, ” husband argued the community estate had no interest in the latter business. Wife initially argued under a [Pereira v. Pereira (1909) 156 Cal. 1] analysis, the community interest in Sunnybrook amounted to nearly $560,000. The court concluded “Sunnybrook is a capital intensive business” and requested “the parties’ respective forensic accountants provide... a [Van Camp v. Van Camp (1921) 52 Cal.App. 17] analysis of what the community might have in Sunnybrook....” (Italics added.)
As for the distributions husband received from Sunnybrook, the court concluded all of the distributions received during marriage were community property. It noted Sunnybrook “involved buying and leasing vehicles, maintaining fuel and mileage records dealing with the DMV and yearly tax returns” and, “[n]otwithstanding that [the parties’] efforts may have been less than full time or even a few days per month – it was a community effort – and Sunnybrook was very successful.” Citing the presumption “‘property acquired during marriage is community, ’” the court found “[t]he Sunnybrook distributions... clearly have a community content [and husband] did not provide an existing theory or a tracing that would allocate an amount to [his] separate interest....”
The parties’ accountants subsequently agreed that, under a Van Camp analysis, the community estate had no interest in Sunnybrook. In a written opinion submitted to the court, wife’s accountant explained, “the [c]ourt has determined that the distributions from Sunnybrook Leasing during the period of the marriage were community property and therefore represent the reasonable value of services rendered by both [wife] and [husband]. The balance of the earning generated by Sunnybrook Leasing is, by definition, [husband’s] separate property.”
Over the next four months, the parties filed pleadings objecting to the court’s findings, seeking clarification of the court’s findings, and requesting additional findings. As a result the court issued four supplemental rulings on the evidence.
In a July 24 response to husband’s request for a statement of decision on specific issues, the court largely repeated the findings contained in the initial statement of decision on the Sunnybrook distributions. In part, it declared husband “did not meet his burden of proof” that “the... distributions... are his separate property. [¶] I have found that the Sunnybrook distributions (profits) had a community component... [¶]... and possibly a separate component. [Husband] had the burden to show what, if any, of the distributions were separate – he did not....”
In a subsequent ruling on husband’s objections to its statement of decision, the court concluded the evidence was insufficient to permit it to determine the specific number of hours or days the parties spent working for Sunnybrook. But, listing the nature of work performed for it, the court found the parties’ “services and the value thereof were not de minim[i]s. Responding to husband’s citation of Family Code section 770, the court found” “Sunnybrook was, and remained during the parties’ marriage, a Subchapter S corporation. [¶] There were no employees of Sunnybrook.... Sunnybrook did not run itself.... [¶] [Husband] distributed all of the income of Sunnybrook to himself. [¶] Some of Sunnybrook’s income may have been (and probably was) the rents[, ] issues[, ] and/or profits of the business... and therefore separate property. [¶] Some of the income of Sunnybrook was the fruit of community effort – and as set forth hereinabove, not a de minim[i]s amount of effort.... [¶]... The Sunnybrook distributions were acquired during marriage; they clearly have a community component; [husband] did not provide an existing theory or a tracing that would allocate an amount to his alleged separate interest therein.”
Based on the foregoing findings, the court found the community had an interest in husband’s residence, a split dollar insurance policy, and accounts with Salomon Smith Barney. It then took these findings into consideration in dividing the parties’ assets. After further briefing on the remaining issues, the court issued additional findings and a statement of decision on those issues and entered a final judgment.
DISCUSSION
1. Introduction
Husband first challenges the trial court’s finding the distributions he received from Sunnybrook during marriage constituted community property. He claims this ruling “constitutes an unprecedented departure from the longestablished rules governing apportionment of the increase in value of a separate property business....” In addition, he claims the erroneous ruling on the Sunnybrook distributions affects the court’s finding of “a community component” in the Mitsui Manufacturers Bank account, the split dollar life insurance policy he purchased from Promark, the mortgage payments on his residence, and deposits made to the Salomon Smith Barney accounts.
Second, husband attacks the finding his Promark SEP IRA constituted community property, claiming “no evidence supports the court’s conclusion the SEP IRA was compensation... of any kind.”
“‘The finding of a trial court that property is either separate or community in character is binding and conclusive on the appellate court if it is supported by sufficient evidence, or if it is based on conflicting evidence or upon evidence that is subject to different inferences, ... ’ [Citations.]” (Beam v. Bank of America (1971) 6 Cal.3d 12, 25.)
2. The Sunnybrook Distributions
Husband acknowledges “[t]he community is entitled to reimbursement for a spouse’s skill and efforts... which have increased the profits or value of a... separate property business, ” but claims the community allocation cannot exceed “that occasioned by a spouse’s effort or skill during marriage.” Thus, he argues the award of the entirety of Sunnybrook’s distributions to the community was error because “the trial court could not quantify the benefit derived from the community effort to [his] separate property business, nor measure the time or effort expended thereon....” We conclude the court’s finding on this issue was erroneous.
In reaching its decision on the Sunnybrook distributions, the court relied on the general presumption established by Family Code section 760. It declares “[e]xcept as otherwise provided by statute, all property... acquired by a married person during the marriage... is community property.” But “[t]he presumption that property acquired during marriage is community property is controlling only when it is impossible to trace the source of the specific property. [Citations.]” (Rosenthal v. Rosenthal (1963) 215 Cal.App.2d 140, 144.) Here, it is undisputed Sunnybrook was husband’s separate property and the distributions at issue were derived from that business. Family Code section 770, subdivision (a) declares, “Separate property of a married person includes...: [¶] (1) All property owned by the person before marriage. [¶]... [¶] (3) The rents, issues, and profits of the property described in this section.” Thus, the court erred by relying on the general presumption in this case.
However, that does not end the issue. Under the equitable apportionment doctrine “[i]ncome from separate property is separate, the intrinsic increase of separate property is separate, but the fruits of the community’s expenditures of time, talent, and labor are community property. [Citations.] [¶] Indeed, the basic concept of community property is that marriage is a partnership where spouses devote their particular talents, energies, and resources to their common good. [Citation.] Acquisitions and gains which are directly or indirectly attributable to community expenditures of labor and resources are shared equally by the community. [Citation.]” (In re Marriage of Dekker (1993) 17 Cal.App.4th 842, 850-851.) Consequently, “[w]here community efforts increase the value of a separate property business, it becomes necessary to quantify the contributions of the separate capital and community effort to the increase. [Citation.]” (Id. at p. 851.)
In Beam v. Bank of America, supra, 6 Cal.3d 12, the Supreme Court summarized the principles governing the apportionment where, during marriage, a spouse expends his or her skill and effort in conducting a separate property business. “[C]ourts have evolved two quite distinct, alternative approaches to allocating earnings between separate and community income in such cases. One method of apportionment, ... the Pereira approach, ‘is to allocate a fair return on the [owner-spouse’s separate property] investment [as separate income] and to allocate any excess to the community property as arising from the [owner-spouse’s] efforts.’ [Citation.] The alternative apportionment approach [Van Camp], ... is ‘to determine the reasonable value of the [owner-spouse’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... 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].... [¶] 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.]’ [Citations.]” (Id. at p. 18, fns. omitted, italics added.)
In this case, the court found the community had no interest in Sunnybrook. While the reasoning employed to reach this conclusion was erroneous, it reached the correct conclusion. Judgments are presumed to be correct. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) Furthermore, “[a]n appellate court reviews the action of a lower court, not its legal reasoning. A ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. [Citations.]” (In re Marriage of Fithian (1977) 74 Cal.App.3d 397, 402, fn. omitted.)
Husband created his businesses before marriage. He testified it was his intention to keep his premarriage property interests as his separate property. In its original statement of decision, the court found husband “was counseled [on] how he might avoid commingling assets” and he “did attempt to avoid such a commingling.” Given Sunnybrook’s unique nature, employing either the Pereira or Van Camp analysis would not lead to a different result as to the business itself. Sunnybrook had but one customer, Promark. Husband owned and controlled both Promark and Sunnybrook and decided which vehicles the latter entity would purchase and lease to the former entity.
But the equitable apportionment doctrine also applies to the profits or income produced by a separate property business to which either one or both spouses devote time and effort. Where “a [spouse] owns a business as his [or her] separate property and devotes his [or her] efforts to the enterprise, there must be an apportionment of the profits.” (Estate of Neilson (1962) 57 Cal.2d 733, 740; Millington v. Millington (1968) 259 Cal.App.2d 896, 907.)
Since Sunnybrook was designated as a Subchapter S corporation, husband was allowed to receive the distribution of its profits as if it were a partnership. “For federal income tax purposes, there are two kinds of corporations: ‘C corporations’... and ‘S corporations’.... A C corporation is a separate entity which pays corporate income taxes ‘according to or measured by its net income.’ [Citation.] [¶] In contrast, an S corporation generally does not pay income taxes as an entity. [Citation.] Rather, the S corporation files only an informational return reporting for the taxable year its gross income (or loss) and deductions, its shareholders, and the shareholders’ pro rata shares of each item. [Citation.] The items are then ‘passed through’ on a pro rata basis to the shareholders, who report them on their personal income tax returns. [Citations.] ‘The S corporation is, in effect, a Code-created hybrid combining traits of both corporations and partnerships.’ [Citation.]” (Heller v. Franchise Tax Board (1994) 21 Cal.App.4th 1730, 1733.)
Noting “[t]he trial court concluded the rule governing the apportionment of any community interest in Sunnybrook was the Van Camp approach, ” and that under it “the court... found there was no community interest in Sunnybrook, ” husband argues “[t]his should have been enough to require a ruling that the profits were separate property.” The problem with this assertion is that the record reflects the finding of no community interest under the Van Camp approach resulted from the trial court’s previously erroneous ruling that the entirety of the distributions from Sunnybrook business were community property. Wife’s expert accountant relied on that finding to conclude no community interest existed in the business.
Next, citing Family Code section 770, subdivision (a) and Rosenthal v. Rosenthal, supra, 215 Cal.App.2d 140, husband argues wife had the burden to establish “the value of the parties’ services, and the extent to which the community should receive credit” for these services. It is true that the trial court erred in apparently placing the burden of proof on husband. The record shows Sunnybrook was husband’s separate property. Thus, absent a showing that community effort was expended in producing Sunnybrook’s distributions, under the foregoing authorities those profits belonged to him.
But here substantial evidence existed that community efforts contributed to Sunnybrook’s profits. The corporation was a separate entity from Promark, not a mere sham. The court found Sunnybrook’s operations included “buy[ing] semi-trucks, trailers and other vehicles, ” “writ[ing] checks for the vehicle purchases” as well as “to the DMV and the Franchise Tax Board, ” “enter[ing] into leases with Promark and collect[ing] the lease payments, ” “keep[ing] track of the mileage of its vehicles and maintain[ing] fuel consumption records, ” plus submitting “quarterly reports... to different public agencies.” As the trial court found, “Sunnybrook did not run itself.” Wife testified as to the work she did for Sunnybrook and the trial court expressly cited to her testimony in its July 24 statement of decision on additional issues.
It is true that “the necessity of apportionment arises when, during marriage, more than minimal community effort is devoted to a separate property business. [Citations.]” (In re Marriage of Dekker, supra, 17 Cal.App.4th at p. 851, fn. omitted.) Here, the court did find community effort was expended to operate Sunnybrook. In an October 11, 2007 clarification of its statement of decision, the court expressly noted the parties’ efforts in carrying out Sunnybrook’s tasks “were not de minim[i]s.”
But husband contends the evidence failed to support a finding as to the extent of community effort in creating Sunnybrook’s profits. We agree.
“If there is evidence of enrichment of separate property, the probable contributions of the community and of the capital investment of the [owner-spouse] must be determined from all the circumstances of the case. This requires findings of fact.” (Strohm v. Strohm (1960) 182 Cal.App.2d 53, 62.) In its October 11 clarification of the statement of decision, the court acknowledged “[i]nsufficient evidence was provided at trial... to make a finding of the value of the community’s service[s] to Sunnybrook during the parties’ marriage....”
As husband notes, the trial court misunderstood its duty in applying the foregoing apportionment principles in this case. Admittedly, it erred by relying on the presumption found in Family Code section 760 that property acquired during the marriage is community property, because it only applies “when it is impossible to trace the source of specific property. [Citation.]” (Gudelj v. Gudelj (1953) 41 Cal.2d 202, 210.) Sunnybrook distributions clearly came from husband’s separate property business. Further, it was necessary for the court to make a determination as to extent of community effort in creating Sunnybrook’s distributions. As a consequence, the judgment’s finding that all of Sunnybrook’s distributions were community property and its characterization and division of other assets premised on this finding must be reversed.
3. The Promark SEP IRA Contributions
Husband’s second appellate claim is that the trial court erred in finding the SEP IRA to which Promark made contributions during the marriage constituted a community asset subject to division. Describing the SEP IRA as “a distribution of profits... to a separate account, in the nature of a dividend, ” he claims there was “no evidence... the SEP IRA was compensation for [his] skills and efforts during marriage, [or] compensation of any kind.” This argument lacks merit.
As noted, “Generally, all property acquired by a spouse during marriage before separation is community property. [Citations.]” (In re Marriage of Lehman (1998) 18 Cal.4th 169, 177.) “[T]his general rule, or ‘presumption’ [citation], covers... employee retirement plans. [Citations.]” (In re Marriage of Benson (2005) 36 Cal.4th 1096, 1103.) “The right to retirement benefits ‘represent[s] a property interest; to the extent that such [a] right[] derive[s] from employment’ during marriage before separation, it ‘comprise[s] a community asset....’ [Citation.] ‘Throughout our decisions we have always recognized that the community owns all [such] rights attributable to employment during marriage’ before separation. [Citation.]” (In re Marriage of Lehman, supra, 18 Cal.4th at p. 177.)
Contrary to husband’s argument, James Christensen, wife’s forensic accounting expert, testified Promark’s SEP IRA constituted “a deferred compensation type of arrangement....” Husband relies on Christensen’s statement that this asset is “not an element of... current compensation, but it is a deduction by Promark in arriving at Promark’s taxable income.” Nonetheless, he testified it constituted an item of community property and “contributions made by an employer to an employee’s deferred compensation plan” are “customarily” treated “as community property if made during marriage.” Christensen also rejected the opinion of husband’s expert that the SEP IRA contributions should be treated as a dividend.
The qualifications and credibility of expert witnesses are issues for the trial court and “[i]t is not within the province of an appellate court to reweigh” the trial court’s determination of these matters. (In re Katrina W. (1994) 31 Cal.App.4th 441, 447.) In addition, the opinion of a single expert witness, even if contradicted by other experts, can suffice to support a finding. (Smith v. Workmen’s Comp. App. Bd. (1969) 71 Cal.2d 588, 592.) Based on the evidence presented at trial, we conclude husband’s attack on the trial court’s finding his SEP IRA contributions made by Promark during the marriage constituted a community asset lacks merit.
DISPOSITION
The judgment’s characterization of the contributions to appellant’s simplified employee pension plan individual retirement account with Promark Advertising, Inc. as community property is affirmed. To the extent the judgment’s characterization of the parties’ assets is based on its finding the distributions from Sunnybrook Leasing, Inc. constitute community property, the judgment is reversed. The matter is remanded to the superior court for further proceedings consistent with this opinion. Appellant shall recover his costs on appeal.
WE CONCUR: BEDSWORTH, J., O’LEARY, J.