Hillery Lore Nye Lee v. Ralph Bryan Lee

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
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In the Matter of the Marriage of ) No. 74405-4-1 ;'",,
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HILLERY LORE NYE LEE, ) ,ko zic
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Appellant, )
) DIVISION ONE
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) ORDER WITHDRAWING OPINION
RALPH BRYAN LEE, ) AND SUBSTITUTING OPINION
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Respondent. )
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The panel has determined that the opinion in the above-entitled case filed on
May 1, 2017, shall be withdrawn and a substitute unpublished opinion be filed.
Therefore it is
ORDERED that the opinion filed on May 1, 2017, is withdrawn and a substitute
unpublished opinion shall be filed.
DATED this ilia day of May 2017.
Yee P61.9-uct-412,
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
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In the Matter of the Marriage of ) No. 74405-4-1
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HILLERY LORE NYE LEE, ) --4
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Appellant, P.:6*rri
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RALPH BRYAN LEE, )
) UNPUBLISHED OPINION
Respondent. )
) FILED: May 8, 2017
MANN, J. — In a marriage dissolution proceeding, the trial court must dispose of
the property and the liabilities of the parties, either community or separate, in a just and
equitable manner. RCW 26.09.080. Hillery Nye (Nye) appeals the trial court's division
of property held by Nye and her former husband, Ralph Lee (Lee). We agree with Nye
that the trial court mischaracterized several significant property assets and that the
mischaracterization significantly influenced the property division. We uphold the trial
court's dissolution decree, but we vacate the court's property division. We remand for a
new evidentiary hearing and the just and equitable division of property.
No. 74405-4-1/2
1
In August 2006, Nye and Lee moved in together. They married in July 2007.
Both Nye and Lee had children from previous marriages, but they did not have children
together.
Lee purchased a house in Seattle's Madrona neighborhood just before he and
Nye moved in together(Madrona house). Lee purchased the Madrona house for $1.87
million, putting down 20 percent and financing the rest on an adjustable rate mortgage.
Nye already owned a home on Vashon Island (Vashon house). The Vashon house
was Nye's childhood home. Before marrying, Nye and Lee each took out Home Equity
Lines of Credit(HELOC)on the two houses. The Vashon house had a credit line of
$100,000 and the Madrona house had a credit line of $191,500. The parties did not
borrow funds from the HELOCs until after marriage.
At the time Lee and Nye moved in together, Lee was employed as a Chief
Financial Officer at Microsoft and Nye had her own law practice, MediaTech, with
another lawyer. Lee's salary at Microsoft was $350,000 to $400,000 plus stock grants
of $1.5 to 1.6 million per year. Nye earned approximately $150,000 per year.
In April 2007, Lee left his job at Microsoft. Accordirjg to Lee, he left with a net
worth of $3 million in real estate and "unrealized" investments. Lee and Nye married in
July 2007. Lee remained unemployed and did not work during the marriage except for
seven to eight months in 2011, and sporadically as a consultant.
In November 2007, Nye and Lee purchased a vacant lot(Vashon lot) adjacent to
the Vashon house for $55,000. They purchased the Vashon lot from Nye's mother.
Nye's mother purchased the adjacent Vashon lot when the previous owner died. Nye
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No. 74405-4-1/3
and Lee took title as joint tenants with a right of survivorship. Nye paid all of the taxes
and utilities on the Vashon lot throughout the marriage. After purchasing the Vashon
lot, Nye negotiated a lease with AT&T. Payments from the AT&T lease were made to
Nye's separate bank account and reported to the Internal Revenue Service (IRS) as
Nye's income.
In September 2008, Nye and Lee's financial condition worsened. Nye's law
practice, MediaTech, shut down in the wake of Nye bringing suit against her law partner
to dissolve the partnership. Nye incurred nearly $500,000 in legal bills. The effort
resulted in a $40,000 award in her favor, which she never recovered. Meanwhile, Lee
remained unemployed and his investments lost significant value. He testified that by
the end of 2008, they went from "$3 million in unrealized gain" to a "realized gain of
approximately $200,000." In 2009, the couple was unable to pay their 2008 taxes and
asked the IRS for a payment plan.
In 2009, Nye started another law firm, Madrona Law Group. Lee transferred
funds from his personal account to help the startup. Nye also borrowed from the
Vashon HELOC to start up the firm. MediaTech and Madrona Law Group lost money in
2009. Lee and Nye did not file a 2009 tax return because of negative income.
Meanwhile, Lee, though unemployed, continued to pay a substantial amount of family
support to his ex-wife.
In 2010, Nye's new law firm, Madrona Law Group, generated a positive cash
flow, from which the mortgagees and other community expenses were paid. That same
year, Lee revealed to Nye that they were "broke." Lee and Nye borrowed additional
funds from friends and family. They also maxed out the Madrona and Vashon HELOCs.
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No. 74405-4-1/4
By this point, the couple could not afford to pay their tax bill. They had an outstanding
unpaid tax bill of $39,000 for 2008. Nye borrowed $25,000 from her Bank of America
credit card to cover part of this debt.
In 2011, Nye's law practice again generated income. However, she was unable
to pay $22,000 in taxes for 2011 and incurred penalties resulting in a $30,000 tax bill
owing for 2011. The IRS put her on a payment plan.
Meanwhile, Lee took a job with Votocracy, a technology start-up from whom Nye
was consulting as outside intellectual property counsel. Lee left within a year after
earning approximately $100,000. Lee also set up a consulting firm, Bryan Lee
Consulting, which earned approximately $50,000 in 2011. In 2011, Lee also incurred
approximately $9,000 in legal fees related to litigation with his ex-wife. In July 2011,
Lee stopped making mortgage payments on the Madrona house.
In 2012, Nye was the victim of a carjacking and was unable to work for about
nine months, having suffered from a posttraumatic stress disorder. In the aftermath, the
couple moved to the Vashon house. Nye's income for the year was a net loss of
$3,000. Lee earned nothing. The couple did not file a 2012 tax return.
In August 2013, Lee and Nye separated and Nye petitioned for dissolution
During the separation, Lee moved back to the Madrona house. At this point, Lee had
not paid the mortgage since 2011. In 2013 and 2014, Lee claims to have earned
$25,000 and $50,000 respectively, for his consulting business, from which he paid his
ex-wile half. Nye remained at the Vashon house and continued to pay taxes and
utilities on the adjacent Vashon lot and receive rent from the AT&T lease. By 2014, Nye
was not able to make mortgage payments on the Vashon house and the house fell into
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No. 74405-4-1/5
foreclosure. The IRS placed a lien on the Vashon house based on failing to make
payments under the 2011 payment plan.
The parties went to trial in February 2014. The trial court issued a preliminary
spreadsheet dividing Lee and Nye's assets and liabilities. The proposed order showed
a judgment of $72,857 owed by Nye to Lee.
After trial, but just before the court issued its order, Nye filed bankruptcy under
Chapter 13, staying the dissolution proceedings. The court expressed frustration at
Nye's bankruptcy filing, agreeing with Lee that "nothing surprises me about this." The
trial court noted that "I was reluctant to issue the spreadsheets 'cause I was afraid of
this, and this is exactly what she did." The trial court added that "this was a classic
move," and told Lee "I am so sorry for you." While the dissolution proceedings were
stayed, Lee submitted a claim in Nye's pending bankruptcy proceedings, disqualifying
her from Chapter 13 eligibility. Nye voluntarily dismissed her bankruptcy proceeding.
After Nye's bankruptcy was dismissed, Lee filed a motion with the dissolution
court to proceed with the dissolution and to admit documents from Nye's bankruptcy
proceedings. Nye opposed Lee's motion and asked the court to hold an evidentiary
hearing and issue a partial decree addressing the noneconomic issues. The court
denied Nye's motion and issued a decree of dissolution and findings of fact and
conclusion law.
The trial court's findings included a list of the division of assets and liabilities to
each party and a spreadsheet. Of significance, the trial court made the following
characterizations and awards:(1) the Madrona house and furnishings was
characterized and awarded to Lee as his separate property,(2) the Vashon house and
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No. 74405-4-1/6
furnishings was characterized and awarded to Nye as her separate property,(3) the
Vashon lot and AT&T lease proceeds were characterized and awarded to Lee as his
separate property, (4)the debt on the Madrona house HELOC was characterized as
community property,(5) the debt on the Vashon house HELOC was characterized as
Nye's separate property,(6) Nye's wedding ring was characterized as community
property,(7) the assets and receivables from the Madrona Law Group was
characterized as community property, and (8) the assets and receivables from Bryan
Lee Consulting was characterized as Lee's separate property. The end result was Lee
received $126,171 net in separate property, plus a payment from Nye of $246,918 for a
total of $373,089. Nye received a negative $47,006 in separate property plus the debt
of $246,918 to Lee for total negative $293,924.
Nye filed a motion for reconsideration of the court's order, challenging the
division, characterization, and valuation. The trial court denied Nye's motion for
reconsideration.
11
Generally, we review a trial court's division of property in a marital dissolution for
an abuse of discretion. In re Marriage of Valente, 179 Wn. App. 817, 831, 320 P.3d 115(2014). The trial court's characterization of property as separate or community is a
question of law that we review de novo. The factual findings supporting the court's
characterization require substantial evidence. In re Marriage of Mueller, 140 Wn. App.
498, 503-04, 167 P.3d 568 (2007). "Substantial evidence exists if the record contains
evidence of a sufficient quantity to persuade a fair-minded, rational person of the truth of
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No. 7'4405-4-1/7
the declared premise." In re Marriage of Griswold, 112 Wn. App. 333, 339, 48 P.3d
1018 (2002).
In a marriage dissolution proceeding, the trial court's division of property is
guided by statute. The relevant factors the court must consider include, but are not
limited to: "(1)[t]he nature and extent of the community property;(2)[t]he nature and
extent of the separate property;(3)[t]he duration of the marriage or domestic
partnership; and (4)[t]he economic circumstances of each spouse or domestic partner
at the time the division of property is to become effective." Valente, 179 Wn. App. at
831 (quoting RCW 26.09.080). In weighing the statutory factors, the trial court must
make a "just and equitable" division of the property. RCW 26.09.080; In re Marriage of
Rockwell, 141 Wn. App. 235, 242, 170 P.3d 572(2007); Valente, 179 Wn. App. at 830-
31.
Ill
As a threshold matter, Nye argues that the trial court's findings of fact and
conclusions of law are inadequate. We agree.
The standard of review discussed above contemplates that we have adequate
findings of fact to review. A trial court must make findings of fact and conclusion of law
sufficient to suggest the factual basis for its ultimate conclusions. In re Marriage of
Lawrence, 105 Wn. App. 683, 686, 20 P.3d 972(2001). Here, while the trial court
entered findings of fact, including tables and a spreadsheet setting forth the property
division, the findings fail to demonstrate the trial court's consideration of the required
statutory elements, including, importantly, the statutory requirement that the division be
"just and equitable." RCW 29.09.080. While inadequate written findings may be
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No. 74405-4-1/8
supplemented by the trial court's oral decision, here there was no oral decision.
Lawrence, 105 Wn. App. at 686; Rockwell, 141 Wn. App. at 240, n.2.
On remand, the trial court should explain in its written findings or oral decision,
that it considered the statutory elements including that the division be "just and
equitable."'
IV
Nye argues first that the trial court mischaracterized certain assets and liabilities.
The effect of this, she maintains, drove a division scheme that "substantially prejudiced"
her. Nye specifically argues that the court mischaracterized:(1) the contents of the
Mad rona house as Lee's separate property and the Mad rona house's HELOC as Lee's
community property,(2) the debt on the Vashon house's HELOC as Nye's separate
property,(3) the Vashon lot and lease as Lee's separate property,(4) the Vashon lot's
postseparation rents as community property, and (5) Nye's engagement ring as
community property. We agree in part.
We first determine whether the property was mischaracterized. All property
acquired during a marriage is presumed to be community property. RCW 26.16.030;
Mueller, 140 Wn. App. at 504. The character of property as community or separate is to
be determined as of the date of its acquisition. In re Marriage of Shannon, 55 Wn. App.
137, 140, 777 P.2d 8(1989). The law favors characterization of property as community
property unless there is no question of its separate character. Mueller, 140 Wn. App. at
1 For example, the trial court awarded all assets and receivables of "Bryan Lee Consulting" to Lee
as his separate property, but did not include that asset in its calculation spreadsheet. In contrast, the trial
court split all assets and receivables of Nye's law practice, the Madrona Law Group, equally between Nye
and Lee. The court did not explain why the two ongoing concerns were treated differently or why this was
a just and equitable result.
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No. 74405-4-1/9
504. Once a presumption in favor of either community or separate property is
established, the burden to overcome the presumption is by clear and convincing
evidence. In re Estate of Borghi, 167 Wn.2d 480, 484, 219 P.3d 932(2009). For real
property, an acknowledged writing is generally required to rebut the presumption.
Borghi, 167 Wn.2d at 484. The test for determining whether a debt obligation is
separate or community in nature is the purpose for which the note was executed. In re
Marriage of Hurd, 69 Wn. App. 38, 54, 848 P.2d 185 (1993). If the money is borrowed
for a community purpose, then the debt is community. If it is borrowed for a separate
purpose, then the debt is separate. Hurd, 69 Wn. App. at 54.
A. Madrona House and Debt
As of trial, the Madrona house was valued at $1,200,000 however carried a
mortgage debt of $1,962,282. The trial court characterized the Madrona house as
community property and assigned a value of $0 to Lee. Lee purchased the Madrona
house before his marriage to Nye. Lee bought the house with his separate funds for the
couple to move into together, and the couple moved in with their children (from previous
marriages) shortly thereafter. Nye asked Lee to be on the title because "she felt
uncomfortable from a relationship standpoint that[Lee] had all the money and the power
and that it was [Lee's] house and [he] could kick [Nye] out on any day." The court
stated at trial that this was the main family home, which was not disputed.
The trial court erred in characterizing the Madrona house as community property.
Because the Madrona house was purchased before the marriage, the house and its
mortgage debt should be characterized as Lee's separate property.
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No. 74405-4-1/10
The Madrona house HELOC carried a debt of $200,894. The trial court
characterized the Madrona house HELOC as community property and assigned the
debt to Lee. The Madrona house HELOC was established prior to the marriage but
funds were not drawn against it until after the marriage. The Madrona HELOC was
used to pay various expenses during the marriage. For example, Nye testified that she
found out that Lee was "out of money" in late 2009 or early 2010, and that at that time
the HELOC was "completely depleted."
The trial court properly characterized the Madrona house HELOC as community
property because it was used for expenses during the marriage.
The trial court characterized all contents within the Madrona house (except Nye's
personal possessions) as Lee's separate property and assigned a net value of $15,000
to Lee. Lee purchased the Madrona house's contents with his separate money prior to
the marriage for $100,000. At separation, the furnishings were valued at $15,000.
The trial court properly characterized these as Lee's separate property.
B. Vashon House HELOC
The trial court characterized the debt on the Vashon house HELOC as Nye's
separate property and assigned the $100,000 debt to Nye. Nye claims that this was an
error because the debt was created after the marriage and was used to pay expenses
associated with the marriage. We agree.
While Nye established the Vashon HELOC two months prior to her marriage to
Lee, she did not draw funds against the HELOC until after marriage. Although Nye
testified that she paid legal fees incurred in a lawsuit with her ex-husband from the
HELOC, Nye also testified that she depleted the HELOC after she discovered Lee was
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No. 74405-4-1/11
broke and that the "goal [with the HELOC] was to. . . bridge the gap until [Lee] got a job
and we could get back on our feet." In addition, Nye took out the HELOC in May 2007,
two months before she married Lee and while she was living with him. The law favors
characterizing property as community property unless there is no question of its
separate character. Mueller, 140 Wn. App. at 504.
The trial court erred in characterizing the Vashon house HELOC as Nye's
separate property. The debt on the Vashon property HELOC is community property.
C. Vashon Lot and Lease
Nye argues next that the court mischaracterized the Vashon lot and AT&T lease
proceeds as Lee's separate property. We agree.
The Vashon lot and lease were purchased and executed during the marriage.
Nye and Lee took title as "husband and wife, joint tenants with right of survivorship."
Similarly, Lee and Nye also executed the lease with AT&T in 2010, while they were still
married. Unless Lee can show that there was no question about the property's
separate character, the law presumes that this asset is community property. See
Mueller, 140 Wn. App. at 504. Although Lee provided a copy of a withdrawal slip from
his separate bank account, this does not rebut the presumption in favor of community
property; he provided no acknowledged writing showing that the property was intended
to be characterized as separate property. See Borqhi, 167 Wn.2d at 484.
The trial court erred in characterizing the Vashon lot and AT&T lease proceeds
as Lee's separate property.
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No. 74405-4-1/12
D. Engagement Ring
The trial court characterized the engagement ring as community property. Nye
argues that the court mischaracterized the engagement ring because Lee gave it to her
before marriage. We agree.
There is no dispute that Lee gave Nye the engagement ring as a premarriage
gift. At trial, while questioning Nye, Lee confirmed that he was "not asserting [the
engagement ring was] anything other than a gift. During closing argument Nye again
admitted "I'm not claiming that I owned the ring." Because Lee gave the engagement
ring to Nye before marriage it was a gift and therefore Nye's separate property. See
Johnson v. Dar Denne, 161 Wash. 496, 497, 296 P. 1105(1931)(jewelry given as a gift
is separate property even if acquired after marriage using community funds).
The trial court erred in characterizing the engagement ring as community
property.
V
Remand is required where (1) the trial court's reasoning indicates that its division
was significantly influenced by its characterization of the property and (2) it is not clear
that had the court properly characterized the property, it would have divided it in the
same way. Shannon, 55 Wn. App. at 142. In these circumstances, remand allows the
trial court "to exercise its discretion in making a fair, just and equitable division on
tenable grounds, that is, with the correct character of the property in mind." Shannon,
55 Wn. App. at 142.
Here, while the trial court appeared to try and divide the community property
evenly, the mischaracterizations discuss above increased the amount that Nye was
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No. 74405-4-1/13
required to pay Lee. It is also unclear that had the trial court properly characterized the
assets and liabilities it would have divided them in the same way.2 Thus, under
Shannon, remand is required for the trial court to correctly characterize the property and
determine the fair value of all community property. After doing so, the trial court should
apply the relevant statutory factors in RCW 26.09.080 and make a "just and equitable"
division of the property. RCW 26.09.080; Rockwell, 141 Wn. App. at 242; Valente, 179
Wn. App. at 830-31.
We vacate the trial court's division and remand for a new trial.
144-1,A ,
WE CONCUR:
2 For example, because the trial court mischaracterized the Vashon lot and lease as Lee's
separate property, it awarded the Vashon lot and its lease to Lee. This is an odd result considering that
the parties bought the lot during marriage and Nye's childhood home—the home she currently lives in—is
next door.
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