Marriage of Sedlock, Matter of
| Citation | 69 Wn.App. 484,849 P.2d 1243 |
| Decision Date | 26 April 1993 |
| Docket Number | No. 28848-2-I,28848-2-I |
| Court | Washington Court of Appeals |
| Parties | In the Matter of the MARRIAGE OF Marcia SEDLOCK, Appellant, and Thomas Sedlock, Respondent. Division 1 |
H. Michael Fields, Anderson & Fields, Seattle, for appellant.
William L. Kinzel, Kinzel, Allen & Skone Inc. P.S., Bellevue; Malcolm Edwards, Edwards, Sieh, Wiggins & Hathaway, P.S., Seattle, for respondent.
Appellant Marcia Sedlock appeals the trial court's characterization, apportionment and distribution of certain assets in the dissolution of the parties' marriage. 1 We affirm in part, reverse in part and remand for further proceedings.
The facts as to each disputed item of property will be set forth as we discuss the issues and applicable law related thereto.
Thomas Sedlock is a certified public accountant who became a principal in the Clark Nuber accounting firm 2 years prior to this marriage. When the parties married, Thomas, then age 34, was earning $60,000 a year. By the time of trial his annual gross income was approximately $200,000. He owned 11 percent of the stock in the firm. His rights in the firm were governed by four documents: (1) a stock purchase and transfer restriction agreement; (2) a shareholder employment agreement; (3) "Deferred Compensation Agreement No. 1" (hereinafter, Plan 1); and (4) "Deferred Compensation Agreement No. 2" (hereinafter, Plan 2).
The amount to be paid for Thomas' stock and for his share of the accounts receivable and work in process at the time of his eventual termination or retirement is governed by the stock purchase and transfer restriction agreement and by Plan 1. Under the stock purchase agreement Thomas will received the book value of his stock without considering the amount of his share of the accounts receivable or work in process. The book value of the stock will be paid at the rate of $4000 a month at 12 percent interest. Under Plan 1, Thomas will receive his percentage shareholder interest in the accounts receivable and work in process, less expenses attributable thereto, also at the rate of $4000 per month at 12 percent interest to commence immediately following the payoff for the book value of the stock.
Plan 2 provides for payments to certain key shareholders, including Thomas, of a portion of their respective salaries for 10 years following retirement. Plan 2 is subject to a vesting schedule. Thomas was 5 percent vested in Plan 2 at the time of marriage. As of December 31, 1989, the valuation date selected by the husband's expert witness for purposes of the divorce proceeding, Thomas was 41.25 percent vested in Plan 2. Thomas will become 100 percent vested in this plan 20 years from the date he became a principal in the firm. Although Plan 2 is to be phased out for most of the shareholders as a 401-K tax qualified retirement plan is phased in, Thomas and three other shareholders will remain beneficiaries of Plan 2 because of their special services to the firm and to its predecessor partnership.
All of these contracts were in place at the time of the marriage.
Marcia retained the services of Arthur Brueggeman and Thomas retained the services of Joseph Lawrence to value Thomas' business interests. Both experts testified that Plan 2 is an agreement to pay for professional goodwill and that the value of Plan 2 was subsumed in their respective calculations of professional goodwill. Although the experts disagreed as to the value of Thomas' professional goodwill, each believed that the goodwill was considerably more valuable than represented by Plan 2 alone.
Joseph Lawrence treated Plan 1 as subsumed in Thomas' professional goodwill, as well. He testified that, because Thomas expects to remain employed with the firm until normal retirement age, Plan 1 should be reduced to its present value for purposes of the valuations here at issue. Mr. Lawrence valued Thomas' business interests as of December 31, 1989, as follows:
Book value of stock $ 28,959
Plan 1 (subsumed in goodwill) 2
Plan 2 (subsumed in goodwill)
Goodwill 100,000
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Total $128,959
Arthur Brueggeman treated Plan 1 as part of Thomas' investment into the net tangible assets of the company (a present value investment) and therefore opined that no reduction to present value was appropriate. Mr. Brueggeman valued the business assets as of December 31, 1990--a year later than the date selected by Joseph Lawrence. On that date Plan 1 was worth $102,000. If Thomas had cashed out on that day he would have received $102,000 payable at the rate of $4000 a month at 12 percent interest. Brueggeman testified that, because Thomas did not "sell" Plan 1 as of December 31, 1990, does not mean that Plan 1 was not worth $102,000 as of that date.
Mr. Brueggeman testified that, as of December 31, 1990, Thomas' business assets were valued as follows:
Book value of stock $ 39,000
Plan 1 102,000
Plan 2 (subsumed in goodwill)
Goodwill 160,000
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Total $301,000
At trial, Thomas presented a calculation reducing Plans 1 and 2 to present value, prepared in-house by his firm, not for the divorce proceedings but at the request of the firm's bankers. According to this calculation the combined present values of Plans 1 and 2 was $51,857.
Following trial, and as the result of a motion for reconsideration by Marcia, the trial court issued a memorandum decision in which it adopted Mr. Brueggeman's figures. Then, Thomas filed a motion for reconsideration, suggesting that the evidence at trial would support the following "compromise" ruling:
Book value of stock $ 39,000
Plans 1 and 2, reduced to present value 51,582 3
Goodwill 118,804 4
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Total $209,386
The trial court issued a memorandum decision on the same day that Thomas filed his motion, adopting this "compromise" approach. 5 Marcia argues that Arthur Brueggeman's approach to the valuation of Plan 1 is legally correct and should be given the force of law in this state. She also contends that Plan 1 should be treated as if it were a pension plan and, since Thomas has the power to determine when he will avail himself of the benefit, the trial court should have valued the plan as of the earliest opportunity the benefits could be obtained. See In re Marriage of Gillmore, 29 Cal.3d 418, 174 Cal.Rptr. 493, 498, 629 P.2d 1, 6 (1981), and In re Marriage of Hurd, 848 P.2d 185, 190 (1993), (because employee spouse could retire at anytime and had an unconditional right to immediate payment of his pension upon retirement, pension was both vested and matured; pension should be valued as of date of dissolution rather than at some future date when employee spouse might choose to retire).
Thomas responds that the trial court's valuation findings are within the range of the credible evidence, and that is all that is required. See Worthington v. Worthington, 73 Wash.2d 759, 764-65, 440 P.2d 478 (1968). We agree with Thomas.
Certainly there are some logical inconsistencies in the trial court's "hybrid" approach to these valuation issues which would likely shock both expert witnesses. Although Plan 2 shares many attributes of a retirement plan and relates to funds which will not be received for many years, Plan 1 relates instead to Thomas' share of the firm's accounts receivable and work in process. Thomas will receive an ongoing return from these Plan 1 assets in the form of salary, bonus and contributions to his 401-K plan, month by month and year by year during the remainder of his employment. Although it is likely that the firm will set aside cash reserves from which to honor its Plan 1 and Plan 2 contractual obligations to its retiring shareholders, the value of Thomas' share of the accounts receivable and work in process as of the date of trial bears little if any relationship to these cash reserves.
The factfinder is given wide latitude in the weight to give expert opinion. Taylor v. Balch Land Dev. Corp., 6 Wash.App. 626, 632, 495 P.2d 1047 (1972). If the trial court had wholly adopted the approach of either Mr. Brueggeman or Mr. Lawrence, this court would be constrained to affirm. Both are wholly credible experts. As their respective testimony indicates, reasonable minds can differ regarding the approach to business valuation issues. Where, as here, a trial court determines that the true value of an asset may lie somewhere between the values testified to by "expert A" and "expert B", the trial court may adopt a "compromise" figure.
Where, as here, the value placed upon the property was greater than that given by one witness and less than that presented by another witness, the court had substantial evidence to support its findings.
In re Marriage of Soriano, 31 Wash.App. 432, 435, 643 P.2d 450 (1982). If the trial court had simply adopted the same bottom line "compromise" value for the business assets here at issue, without explaining its reasoning, we would likewise be constrained to affirm. That the trial court did explain, and that we may disagree with its reasoning, does not change the result. To rule otherwise would be to place the appellate courts in the position of weighing expert testimony, a position we decline to take.
Instead, we look to the reasonableness of the trial court's bottom line result, in light of all of the expert testimony. Here, Joseph Lawrence testified that he believed the combined value of Plans 1 and 2 and the professional goodwill was $100,000. Mr. Brueggeman testified that he believed that the combined value...
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