IN RE: the MARRIAGE OF Shirley Joyce and Fredrick W. MARX (1979)

This is an appeal by Fredrick W. Marx, Jr. (husband) from a judgment in a dissolution of marriage action whereby he contends that the trial court awarded Shirley Joyce Marx (wife) more than one-half of the community estate, and abused its discretion in the award for spousal and child support.

There is no serious dispute concerning the basic underlying facts of the case; therefore, we set them forth substantially as stated by husband in his opening brief.

The parties were married on January 27, 1959, and separated on July 5, 1976. There are three minor children of the marriage, Caroline, Fredrick, and Susan. Custody was awarded to wife by stipulation subject to husband's right of reasonable visitation.

Husband is a general surgeon practicing alone; however, his practice is incorporated. The trial court found that the community property of the parties consisted of the following assets and their values:

Wife received the residence, Ford station wagon and proceeds from the sale of the three etchings. These assets totaled $173,963.00. Husband received the balance of the assets which totaled $172,057.61. To equalize division of the community property, wife was ordered to pay husband $1,905.39.

The court also found there was a community obligation of $22,000 to California Federal Savings & Loan Association. The court ordered husband to pay this obligation as additional spousal support. The principal spousal support order was that husband should pay wife $2,500 a month for two years, $2,000 a month for seven years, and $1,000 thereafter . . . until the death or remarriage of petitioner (wife) or further order of court, whichever event occurs first.

Child support was ordered in the sum of $450 a month per child, for a total of $1,350 a month.

Husband was ordered to pay wife's counsel $7,000 on account of attorney's fees in addition to the $5,000 which he had previously paid, and wife was ordered to pay the balance of her attorneys' fees in the amount of $3,919.25.

Additional facts will be added as required.

I

Husband's first issue on appeal is that the trial court's order requiring him to discharge the community debt of $22,000 to California Federal Savings & Loan Association as “additional spousal support” was not a true support order but was an unlawful charge to him of a community obligation that resulted in an unequal division of the property. Husband's argument is based on recent California cases that have established that community property assets and community property debts must be divided equally when the community assets exceed the community obligations. (In re Marriage of Fonstein, 17 Cal.3d 738, 748, 131 Cal.Rptr. 873, 552 P.2d 1169; In re Marriage of Barnert, 85 Cal.App.3d 413, 420-421, 149 Cal.Rptr. 616; In re Marriage of Smith, 79 Cal.App.3d 725, 746, fn. 9, 145 Cal.Rptr. 205; and In re Marriage of Eastis, 47 Cal.App.3d 459, 463, 120 Cal.Rptr. 861.)

In the case of In re Marriage of Chala, Cal.App., 155 Cal.Rptr. 605, a similar argument was made, and we considered the propriety of an order that required the husband to pay past due community debts as spousal support. The opinion notes that such an award is proper when the payments are necessary to protect the future support payments to the wife by ensuring that they will be used for her living expenses, and not depleted by payments to the creditors or are in reality a discharge of the paying spouse's duty to support. But we also noted the growing trend on the part of trial courts to circumvent the mandate of the Family Law Act to divide the community property equally by ordering a spouse to pay certain debts under the label of spousal support. We held, in Chala, that it was an improper spousal support award.

Here the facts are somewhat different, but we also conclude the order under attack by husband is improper.

Civil Code section 4801, subdivision (a)¹ sets forth the standards that the trial court must consider in awarding spousal support. It appears the court properly followed these standards and made a reasonable monthly support award to wife. Accordingly, there was no need to increase this award by ordering husband to pay the $22,000 debt. A somewhat analogous situation was considered by our Supreme Court in In re Marriage of Epstein, Cal., 154 Cal.Rptr. 413, 592 P.2d 1165, where the trial court allowed husband reimbursement from the community for postseparation house payments he had made. The Supreme Court said the payments were not reimburseable if they were in fact justified as spousal support; if not, the reimbursement was proper. (Id. at p. 417, of 154 Cal.Rptr., at p. 1169 of 592 P.2d.) The case was returned to the trial court for determination of this issue. To help guide the trial court, the opinion adopted a portion of In re Marriage of Smith, supra, 79 Cal.App.3d 725, 748, 145 Cal.Rptr. 205, 216, that said: “However, two prime considerations will obviously be whether or not there was a need for spousal or child support at the time the payment was made and Whether or not the payment made was in addition to reasonable support already being provided by the paying spouse either pursuant to or in the absence of a court order.” (Emphasis ours.) In other words, it would probably not qualify as additional spousal support if Other reasonable support was provided for.

The order requiring husband to pay the debt was suspect for another reason: Civil Code section 4801, subdivision (b) provides: “Except as otherwise agreed by the parties in writing, the obligation of any party under any order or judgment for the support and maintenance of the other party shall terminate upon the death of either party or the remarriage of the other party.” The order here undoubtedly expected husband to pay this debt, regardless of wife's marriage or death before full payment. Wife if she remarried, or her heirs, would certainly so contend if California Federal Savings & Loan tried to collect one-half of the balance from her or from her estate. Wife agrees it would have been “theoretically cleaner” to have ordered her to pay one-half of this debt, but this would have required husband to pay her more spousal support in return. There is nothing in the record to support this argument. It may or may not be true. Wife received a substantial equity in the home and her half of the debt could possibly have been paid through refinancing; or husband could have been required to pay wife's share of the debt but have received an offsetting community property asset. In any event, if the court had found wife was entitled to more spousal support because the payments were related to her future living expenses, they would have stopped in the event of her death or remarriage and husband would not be saddled with her debt, as he could be under the present order.

We conclude that the court erred in not dividing this debt equally between the parties.

II

Husband next claims it was error to value the pension fund at $74,158, which was the face value of the contributions deposited in the fund.² This was unfair, he argues, because the valuation did not make allowances for any income tax that he would be required to pay on the receipt of the pension benefits. There was testimony that if the pension fund was immediately liquidated, the sums received would bear an income tax of 60%, thus producing approximately $30,000 to the recipient. The plan matures in 1990. If it continues to that time an unknown, but substantial, income tax would be owed on payments made to the beneficiary.³ Husband further contends that $1.00 in 1990 will be less than $1.00 today, (citing In re Marriage of Tammen, 63 Cal.App.3d 927, 931, 134 Cal.Rptr. 161) making it even more inequitable to him if he must take the entire pension plan. For these reasons, he states, the court was required to divide the pension fund in kind, either by assigning one-half of the proceeds to wife when they are due (she would then pay her share of the tax), or by immediately liquidating the pension fund and distributing the proceeds equally after payment of taxes.

In In re Marriage of Brigden, 80 Cal.App.3d 380, 145 Cal.Rptr. 716, the court discussed in detail equal division of a specific community asset, and concluded that absent economic circumstances warranting assignment of the entire asset to one spouse, Civil Code section 4800, subdivision (b)(1) requires equal division in kind. Repetition of the court's reasoning is unnecessary here. Suffice it to say the opinion recognized that tax consequences, and other inequities, are circumstances to be considered when the parties are not in agreement on the division of the assets. In Brigden, the inequities fell on the wife who wanted, but did not receive, one-half of the asset (a block of stock) that was given to the husband. Here the situation is reversed, the inequities fall on husband who did not want the asset,⁴ but was ordered to take it. However, we see no reason to have a double standard and neither party should be penalized when distribution in kind can prevent inequities. Furthermore, no economic circumstances were present here that would warrant distribution to husband. Under different facts, an award similar to the award here might be justified because of the economic circumstances, but the law in Brigden is far more applicable to the facts of this case and it was error not to equally distribute the pension fund in kind, either immediately or in the future.

Before leaving this issue, wife's argument deserves response. She contends we should not consider the tax consequences of the award because they are speculative under In re Marriage of Fonstein, supra, 17 Cal.3d 738, 131 Cal.Rptr. 873, 552 P.2d 1169, where the full market value of husband's interest in his long-term partnership was transferred to him and the tax consequences were not considered. It was conceded that if he sold his interest, there would be a capital gain tax connected with the transaction; however, the court stated at page 749, 131 Cal.Rptr. at page 879, 552 P.2d at page 1175: “(O)nce having made such equal division, the court is not required to speculate about what either or both of the spouses may possibly do with his or her equal share and therefore to engraft on the division further adjustments reflecting situations based on theory rather than fact.” Husband in Fonstein may never have found it desirable or necessary to sell his interest; therefore, a tax to him rather than his heirs or estate is clearly speculative.

Wife's argument applies to a situation where the court is asked to offset a future unknown tax liability by present adjustment in one form or another of the division of the property.⁵ Where, however, distribution of an asset in kind can prevent an unequal tax consequence, Brigden tells us this is a reason, among others, for dividing the asset equally. There is no inconsistency between the two rules; they are just applied to different situations.

III

Husband's third issue on appeal is that it was error to value the medical corporation at $85,990. This figure was submitted by wife's expert witness, who reached his conclusion by preparing a balance sheet and adding a goodwill factor to the reconstructed book value. One of the principal assets of the corporation as of December 31, 1976, the date of the expert's valuation were accounts receivable which were discounted to $36,719. Husband states that including the accounts receivable in the valuation of his business is error because it in effect gives the wife half of the accounts receivable in the distribution of the community property, and then gives her the other half or a substantial portion thereof via spousal and child support. We disagree. Evidence showed that the value of the accounts receivable existing on the date of separation (July 5, 1976) were of essentially the same value as at year end, the accounting date nearest the date of trial (December 31, 1976.) Wife had a community interest in the accounts receivable existing on the date of separation, and by including them in the valuation of the business, her interest is protected. Child and spousal support must be based upon the supporting spouse's future earnings or income. “Following separation, the preferred source for payment of support is the separate property of the supporting spouse that would have been community property if the spouses were not separated.” (In re Marriage of Epstein, supra, Cal., 154 Cal.Rptr. 413, 418, 592 P.2d 1165, 1170.) Husband's argument would require child and spousal support to be paid from community cash on hand before his responsibility for the support commences. This is not the law, and there was no error.

IV

The next issue concerns the valuation of $260,000 placed on the family home. The property in question is located in a fashionable neighborhood in Los Angeles, California. It was purchased in 1973 at a cost of $124,000, and an additional $129,000 was spent in improvements shortly thereafter. Wife's expert witness valued the family home at $260,000, a valuation that exceeds by only $1,000 the cost of the property. Husband's expert testified that the family home would command a sale price of between $325,000 and $330,000. It is husband's position that it is a matter of common knowledge that desirable residential property in West Los Angeles, which cost $259,000 in 1973, had increased substantially in value by 1977. In connection with this argument, husband's counsel states that he was surprised when he received the “memorandum of intended decision” that awarded the home to wife and the pension plan to husband. He states he had assumed that the trial court would divide the pension benefits in kind and order the family home sold, which would, in his opinion, have been the equitable approach to take. When he saw the memorandum, he moved the court to reopen for the purpose of introducing additional evidence. A portion of this evidence was an offer by husband to purchase the family home from community property for $290,000, which would have added $30,000 to the community funds, and to then place the property on the market and to divide the additional proceeds over $290,000 that he expected to receive equally with the wife. The court refused to permit the introduction of this evidence.

Husband's argument has some merit but we are not required to rule on the issue. This case unfortunately must be retried and the issue should be considered under the facts as they exist at time of the new trial.

V

Husband's final argument is that the award of spousal support and child support constitutes an abuse of discretion.

He concedes that the trial court has wide discretion to fix spousal support and child support. (In re Marriage of Morrison, 20 Cal.3d 437, 454, 143 Cal.Rptr. 139, 573 P.2d 41.) Husband cites various arguments, including figures, to support his allegation that he cannot afford to pay the combined spousal and child support order by the court. In sum, he states that the trial court had before it uncontradicted evidence that his salary is $7,000 a month for an annual gross income of $84,000, and that it was an abuse of discretion to award the wife and three children $3,850 a month combined support when his take-home pay from the $7,000 was only $4,100. These figures, at least as to his net income, are inconsistent with the trial court's findings. There was considerable expert testimony as to the tax consequences of the different amounts of spousal support. The trial court found that husband will have a net spendable income of $6,637 per month after taxes. Wife's analysis of the combined awards seems to be supported by substantial evidence; that is, that the monthly income after tax for the wife and three children is $3,550 vs. after-tax income of roughly $2,787 for the husband living alone. After the first two years this figure declines as wife's monthly income is reduced by $500 a month. For the first two years, wife and the three children will receive 53.49% Of husband's after-tax income. The trial court found that husband's monthly living expenses are $1,440. Based upon these figures, which are supported by the evidence, we cannot say that the court abused its discretion in spousal and child support awards, and they are affirmed.

On retrial, however, the division of the community assets can be so inextricably interwoven with the child and spousal support awards that it will probably be necessary for the trial court to reconsider the propriety of these awards. We are not suggesting that they were too high or too low; only that the change of circumstances based on division of the community property might require, or might not require, some modification.

The judgment is reversed as to the division of the community property and the valuation of the home. It is affirmed in all other respects. Both parties to assume their own costs on appeal.

FOOTNOTES

1.  The pertinent provisions of section 4801, subd. (a) are:“(a) In any judgment decreeing the dissolution of a marriage or a legal separation of the parties, the court may order a party to pay for the support of the other party any amount, and for such period of time, as the court may deem just and reasonable. In making the award, the court shall consider the following circumstances of the respective parties:“(1) The earning capacity and needs of each spouse.“(2) The obligations and assets, including the separate property, of each.“(3) The duration of the marriage.“(4) The ability of the supported spouse to engage in gainful employment without interfering with the interests of dependent children in the custody of the spouse.“(5) The time required for the supported spouse to acquire appropriate education, training, and employment.“(6) The age and health of the parties.“(7) The standard of living of the parties.“(8) Any other factors which it deems just and equitable.”

2.  Monies deposited from husband's corporation into the pension plan are deductible to the corporation. The income tax is deferred until actual payments to the beneficiaries of the plan.

3.  The amount cannot be ascertained now because the recipient's tax bracket will probably change. Normally, the tax bracket will be lower if the recipient has retired, because of less income, which is the principal reason for a deferred income pension plan.

4.  The recent case of In re Marriage of Connolly, 23 Cal.3d 590, 602-603, 153 Cal.Rptr. 423, 430, 591 P.2d 911, 918, places some importance on the wishes of one of the parties, saying: “Unlike the wife in Brigden, plaintiff wife here did not request award of the stock either partially or in toto. . . .”

5.  We are not saying the tax situation here is necessarily comparable to Fonstein. When the dissolution occurs, distribution of the pension fund might be just around the corner so that the tax might qualify as “immediate and determinable.”

HASTINGS, Associate Justice.

KAUS, P. J., and STEPHENS, J., concur.