Court of Appeals Division III
State of Washington
Opinion Information Sheet
Docket Number: 15877-2-III
Title of Case: In RE the Marriage of L. Dianne Zahm
v.
And Kermit A. Zahm
File Date: 05/05/98
SOURCE OF APPEAL
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Appeal from Superior Court of Walla Walla County
Docket No: 95-3-00030-9
Judgment or order under review
Date filed: 05/20/96
Judge signing: Hon. Yancey Reser
JUDGES
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Authored by Stephen M. Brown
Concurring: Frank L. Kurtz
Dennis J. Sweeney
COUNSEL OF RECORD
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Counsel for Appellant(s)
William S. Lowry
102 West Main St.
Ste 200
Walla Walla, WA 99362-2856
Christopher M. Constantine
Attorney At Law
PO Box 7125
Tacoma, WA 98407
Counsel for Respondent(s)
Albert J. Golden
Golden & Knowlton
P.O. Box 1615
Walla Walla, WA 99362-0030
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
In re the Marriage of: )
) No. 15877-2-III
L. DIANNE ZAHM, ) )
Division Three
Respondent, ) Panel Eight
and ) )
PUBLISHED OPINION
KERMIT A. ZAHM, )
)
Appellant. ) FILED
BROWN, J. Today we decide for the first time in Washington, whether
indivisible social security benefits can be considered by a trial court
when making provision in a marital dissolution for property division or
maintenance. We hold they can. Because of the trial court's error in
characterizing the benefits as community property instead of separate
property was harmless, we decide there was no abuse of trial court
discretion in its property division or maintenance award. We affirm.
FACTS
Idaho residents Kermit and Diane Zahm were married June 1978 in Las Vegas,
Nevada. Mr. Zahm then moved into Mrs. Zahm's Idaho home. In 1984, the
family moved into an Idaho townhouse owned by Mr. Zahm. Mrs. Zahm sold her
home and deposited the money in a separate bank account for her and her
daughters. Mrs. Zahm left the townhouse in 1986 when the couple separated
and relocated to Walla Walla, Washington. Back in Idaho, dissolution
proceedings began, but were dismissed when the parties reconciled in 1987.
The parties then lived together in a Walla Walla apartment. They
purchased a Walla Walla home on Bandra Drive in 1990 by combining their
separate funds for a down payment and signing a promissory note for the
remaining purchase price.
Two years prior to purchasing the Bandra Drive home, Mr. Zahm sold the
townhouse in Idaho to Elizabeth Jackson. Mr. Zahm placed Mrs. Zahm's name
along with his on the promissory note and deed of trust. Ms. Jackson made
her monthly payments to a First Interstate Bank of Washington account owned
by both Mr. and Mrs. Zahm.
In 1991, Mr. Zahm assigned a fraction of his interest in Ms. Jackson's note
for $32,400. This money was deposited into Mr. Zahm's checking account at
the Overland Park Plaza Branch of the First Interstate Bank of Idaho along
with his disability benefits, army retirement benefits, State of Idaho
retirement benefits and social security benefits. Mrs. Zahm and Ty Zahm,
Mr. Zahm's son, were also on the signature card for this account. In 1993,
Mr. Zahm sold his remaining interest in the Jackson contract for
$23,554.20, which he deposited into the Overland Park account. In 1994,
Mr. Zahm withdrew $51,223.57 from the Overland Park account and paid off
the mortgage on the Bandra Drive home.
The parties separated on January 30, 1995. Three days later, Mrs.
Zahm petitioned for dissolution. On May 20, 1996, the trial court
dissolved the marriage. It characterized the Bandra Drive home and the
Overland Park account as community property. Also under the heading:
"Community Property" the court noted Mr. Zahm earned 61 percent of his
social security benefits during the marriage. The court also awarded Mrs.
Zahm Tier I and Tier II maintenance. Under Tier I, Mrs. Zahm was to
receive $300 per month in lieu of her interest in Mr. Zahm's military and
state retirement benefits. Under Tier II, Mrs. Zahm received an additional
$1,100 per month until a $30,000 judgment awarded Mr. Zahm was paid off.
Then, Mrs. Zahm was to receive $900 a month until she reached the age of
62, and then $500 a month. Mr. Zahm has appealed.
ANALYSIS
A. Social Security Benefits. We first consider whether the trial
court erred when listing Mr. Zahm's social security benefits as community
property in view of federal law precluding their division. Next, if so,
whether the error was harmless. Finally, regarding social security
benefits, we must decide whether a trial court can circumvent the
unavailability of social security benefits by awarding other community
property to the non-owning spouse as a setoff.
The trial court has broad discretion to distribute marital property. In re
Marriage of Tower, 55 Wn. App. 697, 700, 780 P.2d 863 (1989), review
denied, 114 Wn.2d 1002 (1990). We review for a manifest abuse of this
discretion. In re Marriage of Washburn, 101 Wn.2d 168, 179, 677 P.2d 152
(1984). The standard requires proof the judge's decision was manifestly
unreasonable or based on untenable grounds or for untenable reasons. Tower,
55 Wn. App. at 700.
Section 407(a) of the Social Security Act provides in part: "The right of
any person to any future payment under this subchapter shall not be
transferable or assignable" and thus, generally makes moneys payable under
the social security laws indivisible. Section 659(a) provides an exception
by permitting the assignment of social security benefits to pay for alimony
or child support. However, section 659(i)(3)(B)(ii) expressly excludes any
payment to a spouse in compliance with any community property settlement,
equitable distribution of property, or other division between spouses or
former spouses.
In Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S. Ct. 802, 59 L. Ed. 2d 1
(1979), the United States Supreme Court held the Supremacy Clause precluded
California's community property laws from overcoming the Federal Railroad
Retirement Act. The Court likened railroad retirement benefits to social
security benefits in that both are non-contractual agreements. Id. at 575.
The Court then concluded federal railroad retirement benefits were not
subject to distribution in a dissolution proceeding. Id. at 584.
Washington courts have not addressed the issue of federal preemption as it
relates to social security benefits. However, the Arizona and California
appellate courts have held that social security benefits are not community
property, and therefore, not subject to division. See Luna v. Luna, 125
Ariz. 120, 608 P.2d 57, 60 (1979); In re Marriage of Hillerman, 109 Cal.
App. 3d 334, 345, 167 Cal. Rptr. 240 (1980). If they are not community
property, they must be separate property. Nevertheless, all property,
community and separate, is before the court when considering what is just
and equitable in the disposition of property and liabilities. RCW
26.09.080.
Based on the holdings of the United States Supreme Court and other
jurisdictions, we conclude federal statutes regarding social security
benefits preempt state community property laws. We hold the social
security benefits are the separate indivisible property of the spouse
earning them. This holding ensures the benefits actually reach the
beneficiary and protects the benefits from the legal process. Hisquierdo,
439 U.S. at 584. Here, the trial court should not have listed Mr. Zahm's
social security benefits as "Community Property." However, the trial
court acknowledged in its oral decision that social security benefits were
not to be apportioned. Therefore, it was harmless error to list the
benefits under "Community Property."
The crucial issue then becomes whether a trial court can still
consider social security benefits as part of the parties' property and
liabilities when deciding a just and equitable distribution of their
property. Despite the language in Hisquierdo, 439 U.S. at 588 that "{a}n
offsetting award . . . would upset the statutory balance and impair
petitioner's economic security just as surely as would a regular deduction
from his {or her} benefit check," jurisdictions are split on this issue.
In Mahoney v. Mahoney, 425 Mass. 441, 681 N.E.2d 852, 856 (1997), the
Supreme Judicial Court of Massachusetts held a judge may consider a
spouse's anticipated social security benefits as one factor, among others,
in making an equitable distribution of marital assets. See also In re
Marriage of Brane, 21 Kan. App. 2d 778, 908 P.2d 625 (1995); Pongonis v.
Pongonis, 606 A.2d 1055 (Me. 1992); Rudden v. Rudden, 765 S.W.2d 719 (Mo.
Ct. App. 1989).
Alternatively, the Supreme Court of Nevada in Wolff v. Wolff, 112 Nev.
1355, 929 P.2d 916, 921 (1996) held a court may not consider such benefits
when dividing a marital estate. See also Olson v. Olson, 445 N.W.2d 1
(N.D. 1989); In re Marriage of Swan, 301 Or. 167, 720 P.2d 747 (1986).
Washington courts have yet to address this issue.
A significant argument for not allowing social security benefits to be
considered is that future benefits would be hard to evaluate. Furthermore,
a recipient could die before he or she receives the benefits. These are
practical, but not insurmountable problems a trial court should consider.
However, we need not resolve them here because Mr. Zahm is currently
receiving his social security benefits.
When deciding a just and equitable distribution, relevant factors include:
"(1) The nature and extent of the community property; (2) The nature and
extent of the separate property; (3) The duration of the marriage; and (4)
The economic circumstances of each spouse at the time the division of
property is to become effective . . . ." RCW 26.09.080. A trial court
could not properly evaluate the economic circumstances of the spouses
unless it could also consider the amount of social security benefits
currently received. We agree with the authorities cited from
Massachusetts, Kansas, and Missouri and hold the trial court did not abuse
its discretion in considering Mr. Zahm's social security benefits when
evaluating the economic circumstances of the parties.
B. Characterization of Property. We consider whether the trial court
erred in characterizing the Idaho bank account and the Bandra Drive
residence as community property. Washington has long accepted the
principle that the character of property is determined under the law of the
state where the couple is domiciled at the time of its acquisition. In re
Marriage of Landry, 103 Wn.2d 807, 810, 699 P.2d 214 (1985); Rustad v.
Rustad, 61 Wn.2d 176, 179, 377 P.2d 414 (1963). Since the Overland Park
account was established while the parties were domiciled in Idaho, Idaho
law governs.
In Idaho, it is presumed all property acquired by spouses during
marriage is community property. Weilmunster v. Weilmunster, 124 Idaho 227,
858 P.2d 766, 771 (1993) (citing Stahl v. Stahl, 91 Idaho 794, 430 P.2d
685, 688-89 (1967)). However, if a spouse has separate property and that
property is identifiable and traceable, commingling of such separate
property with community property will not convert the separate property
into community property. Id. The spouse asserting that the assets are
separate has the burden of proving the property is such with reasonable
certainty and particularity. Weilmunster, 858 P.2d at 772 (citing Houska
v. Houska, 95 Idaho 568, 512 P.2d 1317, 1319 (1973)).
Here, both Mr. and Mrs. Zahm's names were on the Overland Park
account. Furthermore, from the accounting provided by Mr. Zahm, there was
commingling of community property and separate property. Mr. Zahm also
deposited other community property funds into this account and used this
account to pay off community debts.
Based on the record, the trial court had tenable grounds to conclude
under Idaho law the Overland Park account had been so commingled that the
account became community property. Even if all the funds in the account
could be traced with certainty and particularity rendering the account to
be Mr. Zahm's separate property, it was still within the trial court's
discretion to divide it under RCW 26.09.080 to reach a just and equitable
distribution. Either way, the court did not abuse its discretion in
characterizing the Idaho bank account as community property.
We next consider the Bandra Drive property. In Washington property
acquired during marriage is presumed to be community property. In re
Marriage of Short, 125 Wn.2d 865, 870, 890 P.2d 12 (1995). However, this
presumption may be rebutted with clear, cogent, and convincing evidence.
In re Marriage of Olivares, 69 Wn. App. 324, 336, 848 P.2d 1281, review
denied, 122 Wn.2d 1009 (1993). Mr. Zahm contends the "mortgage rule"
rebuts this presumption.
The mortgage rule is used to assist in characterizing assets acquired
over time, by a combination of community and separate funds. Harry M.
Cross, The Community Property Law in Washington, 61 Wash. L. Rev. 13, 39-49
(1986). The mortgage rule focuses on whether the parties become obligated
to make payments in order to acquire an asset. Where there is such an
obligation, the character of the property is determined as of the date of
its acquisition, by the character of the down payment and any credit
pledged. Mr. Zahm contends his separate property was used as credit to
secure the home loan, therefore, the home should be his separate property.
Assuming Mr. Zahm is correct, his argument neglects the fact both parties
contributed their separate property toward the down payment. Therefore,
Mr. Zahm's assertion that his separate property was used as credit to
secure the loan on the home does not alone convincingly rebut the
presumption that the home is community property. This is a tenable ground
for the trial court to deem the home community property. Accordingly, the
trial court did not abuse its discretion in characterizing the home as
community property.
C. Maintenance. Did the trial court err by awarding Mrs. Zahm
maintenance? A trial court has discretion to grant a party maintenance in
an amount it deems just after considering all relevant factors. RCW
26.09.090(1); In re Marriage of Williams, 84 Wn. App. 263, 267-68, 927 P.2d
679 (1996), review denied, 131 Wn.2d 1025 (1997). On appeal, an award of
maintenance is reviewed for an abuse of discretion. In re Marriage of
Mathews, 70 Wn. App. 116, 123, 853 P.2d 462, review denied, 122 Wn.2d 1021
(1993). Here, Mr. Zahm argues the court abused its discretion in awarding
Mrs. Zahm maintenance by not applying the factors in RCW 26.09.090 and
relying on Mr. Zahm's social security benefits in making the award.
In its oral decision on November 8, 1996, the court distinctly set
forth its analysis of the factors in RCW 26.09.090. The court discussed
Mr. and Mrs. Zahm's incomes and resources, the age of the parties, the
parties' medical conditions, and the ability of Mr. Zahm to pay
maintenance. The record supports the reasoning; thus, tenable grounds
existed for the court to decide Mrs. Zahm's need for maintenance and Mr.
Zahm's ability to pay. We also conclude it was not error for the trial
court to consider the social security benefits when deciding Mrs. Zahm's
maintenance award for the same reasons discussed when considering the
property division. Additionally, as we just discussed, the trial court
properly applied the RCW 26.09.090 factors. Accordingly, we hold the trial
judge did not abuse his discretion in making the award of maintenance.
D. Attorney Fees. Mrs. Zahm has requested an award of attorney fees.
RCW 26.09.140 and RAP 18.1 allow such fees on appeal. The primary
consideration for awarding attorney fees in a dissolution proceeding is if
it would be equitable. In re Marriage of Van Camp, 82 Wn. App. 339, 342,
918 P.2d 509, review denied, 130 Wn.2d 1019 (1996). Here, both parties are
in a position to pay their own fees. Therefore, Mrs. Zahm's request should
be denied.
CONCLUSION
A trial court when making provision in a marital dissolution for
property division or maintenance can consider social security benefits
notwithstanding the indivisibility of these benefits under federal law.
Therefore, the trial court did not err when considering the social security
benefits as a relevant factor when deciding the property division and
maintenance issues. Although the trial court should have characterized the
social security benefits as Mr. Zahm's separate property because of federal
preemption, the error was harmless. The trial court did not abuse its
discretion when deciding the property division and maintenance issues.
Accordingly, we affirm the trial court.
Brown, J.
WE CONCUR:
Kurtz, A.C.J.
Sweeney, J.