IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
In the Matter of the Marriage of No. 87045-9-I
THOMAS ESPINOSA, DIVISION ONE
Respondent, UNPUBLISHED OPINION and
KARI ESPINOSA,
Appellant.
SMITH, J. — In 1991, Thomas and Kari Espinosa married. In March 2016,
they separated, and Kari moved outside the marital home. Thomas filed for
divorce in June 2016.
During their marriage, Thomas created Earthbound Corporation (EBC) in
2004, with Thomas and Kari owning 40 percent of the company. After the couple
separated, Thomas took control of EBC. Kari was not involved with the business
or business decisions.
At the conclusion of the dissolution proceedings, the court held that for
purposes of distribution, the parties’ property would be valued on March 29,
2016, the date of Thomas and Kari’s separation. The court held that because
EBC was formed during the marriage, it was a community asset in part, with the
increased value and the additional shares acquired after the separation being
Thomas’s separate property. For Kari’s share of the community interest in EBC, No. 87045-9-I/2
the court granted her an equalizing payment totaling $1,600,000 with seven
percent interest per annum. Kari appeals.
We find that some of the court’s findings are in error and the court failed to
make the necessary findings regarding some of the issues. We remand for the
trial court to: (1) determine and issue findings regarding character and
distribution of the additional shares of EBC purchased during the separation with
a loan secured by community property, (2) make a determination regarding the
property distribution based on this court’s ruling and the parties’ financial status
at the time of dissolution in 2024, (3) reevaluate and issue findings regarding
Kari’s request for spousal support in light of any changes made to the property
distribution, and (4) issue findings regarding the seven percent per annum
interest rate on Kari’s equalizing payment.
FACTS
In 1991, Thomas and Kari Espinosa married.1 In 2004, Thomas created
Earthbound Corporation (EBC), with Thomas and Kari owning 40 percent of the
company.2 In March 2016, the couple separated, and Kari moved out of the
marital home. Thomas filed for divorce in June 2016. The court ordered Thomas
to pay Kari temporary spousal support in the amount of $3,000 a month. In
addition, Thomas paid all of the mortgages, utilities, and health and vehicle
1 We refer to the parties by their first names solely for the purpose of clarity and to avoid confusion. 2 Thomas created other LLCs that held assets related to EBC including Tec Manufacturing, Intact, Diverse, and Earthbound Holdings LLC. These LLCs were included in the valuation of EBC.
2 No. 87045-9-I/3
insurance. Thomas also replaced Kari’s car. The minor children resided with
Thomas, and Kari did not pay child support. In September 2016, the court
paused the divorce proceedings for a parental investigation and for a valuation of
EBC. Litigation did not resume until July 2020.
While Thomas and Kari were married, Kari worked part-time as a travel
agent and a retail salesperson.3 Kari’s travel business earned her less than
$15,000 annually. In 2020, Kari inherited a business from her father, Bear Creek
Tree Works, and her income rose significantly. In 2021 and 2022, Kari’s income
was over $150,000.
During their separation, Thomas took control of EBC. Kari was not
involved with the business or business decisions after their separation. Thomas
continued to work for EBC, made new investments, bought new equipment, and
contributed new inventions. In December 2020, while the couple was still
separated, Thomas purchased 6,000 additional shares of EBC through LavaGlo.
LavaGlo was a corporation that Thomas formed after the separation. Thomas
testified that he took a loan out from EBC to fund the purchase which he
negotiated with the shareholders and included a repayment structure.
During trial, Arik Van Zandt, a jointly hired expert witness, testified about
his valuation of EBC and discussed how he addressed the commercial property,
Tye Street, owned by Tec Enterprises. Tec Enterprises was a separate entity
3 Kari also worked on and off for her father in his insurance business and his tree business.
3 No. 87045-9-I/4
owned by Thomas. Van Zandt testified that the value of Tye Street’s use was
contained in the valuation of EBC.4
At the conclusion of the dissolution trial, the court held that for purposes of
distribution, the parties’ property, which included EBC, would be valued on
March 29, 2016, the date of Thomas and Kari’s separation. The profits and any
additional shares obtained thereafter, would be Thomas’s separate property.5
Thomas was awarded all rights and title to EBC. Because EBC was formed
during the marriage, the court considered it a community asset in part. EBC’s
valuation included the value of Tye Street. Kari received an equalizing payment
totaling $1,600,000, with seven percent interest per annum. The court did not
award Kari the spousal support she requested. Kari appeals.
ANALYSIS
Characterization of Property
First, Kari asserts that the court erred in characterizing the post-separation
value of the parties’ interest in Earthbound and the additional shares purchased
by Thomas after the separation as Thomas’s separate property. Thomas
contends the court did not err because he purchased the additional shares with
4 In EBC’s valuation, Van Zandt also included Thomas’s other LLCs that held assets for EBC. 5 The court awarded all rights and interest in Bear Creek Tree Works to Kari. The court awarded Thomas three properties: two properties in Monroe, Washington and one in Snohomish, Washington. The court also awarded the following real properties to Thomas: a Larson boat, motorcycles, a horse trailer, a tractor, a Ford F-250, an Excursion, and a cargo hauler trailer. The court awarded Kari two properties—one in Snohomish, Washington and another in Leavenworth, Washington—as well as a motor sports vehicle and a Ford Excursion.
4 No. 87045-9-I/5
separate funds and his efforts are the reason for the increased value of EBC.
While evidence supports the court’s finding that Thomas was responsible for the
increased value of EBC, the court erred in finding that the loan to purchase the
additional shares was funded with Thomas’s separate property. The court also
erred in not including findings of fact regarding the repayment of the loan and its
effect on the characterization of the property, if any.
In a marriage dissolution, all property, both community and separate, is
before the court for distribution. In re Marriage of Zier, 136 Wn. App. 40, 45, 147
P.3d 624 (2006). The appellate court reviews de novo a trial court's
characterizations of property as separate property or community property. Zier,
136 Wn. App. at 45. A court's property division will not be reversed if it can be
sustained on any theory supported by record and law. Sprague v. Sumitomo
Forestry Co., Ltd., 104 Wn.2d 751, 758, 709 P.2d 1200 (1985). “When
spouses . . . are living separate and apart, their respective earnings and
accumulations shall be the separate property of each. RCW 26.16.140. “ ‘[M]ere
physical separation of the parties does not establish that they are living separate
and apart sufficiently to negate the existence of a community.’ ” Nuss v. Nuss,
65 Wn. App. 334, 344, 828 P.2d 627 (1992) (alteration in original) (quoting Oil
Heat Co. v. Sweeney, 26 Wn. App. 351, 354, 613 P.2d 169 (1980)). “ ‘The test is
whether the parties by their conduct have exhibited a decision to renounce the
community, with no intention of ever resuming the marital relationship.’ ” Nuss,
65 Wn. App. at 344 (quoting Sweeney, 26 Wn. App. at 354). The character of
5 No. 87045-9-I/6
real property is determined by character of funds it is purchased with. Rustad v.
Rustad, 61 Wn.2d 176, 178-79, 377 P.2d 414 (1963).
1. EBC as Separate Property in Part
Kari claims that the equalizing payment should have been based on
EBC’s 2024 valuation, instead of its 2016 valuation. Specifically, Kari asserts
that the couple’s separation had no impact on EBC’s property characterization,
and Thomas’s management of the business was still for the benefit of the
community.
Kari moved out of the marital home in March 2016, and Thomas filed for
divorce three months later. During the divorce proceedings, Kari and Thomas
managed separate finances. After the separation, Thomas made EBC his own
business. Thomas made new investments, bought new machinery and
equipment, and had new ideas and inventions. Van Zandt also testified that
EBC’s increased business activity from 2016 to 2023 increased the value of
EBC. Because it is evident that the parties renounced the community and lived
separately for eight years while Thomas continued to run the business, it was not
error for the court to find that EBC’s increased value after the separation is
Thomas’s separate property. Substantial evidence supports the court’s findings.
We find that the court’s determination that the date of the valuation of EBC
shares purchased prior to separation should be the date of separation was not
error.
6 No. 87045-9-I/7
2. Thomas’s Compensation
Even if the increased value is found separate property, Kari asserts that
Thomas was compensated for those efforts. Kari contends that in a business, if
the laboring spouse is compensated with a salary, the increased value of the
business retains the original character of the business itself. However, Kari relies
on law not applicable to this case.
Kari relies on Hamlin v. Merlino, 44 Wn.2d 851, 858-59, 272 P.2d 125
(1954), and In re Hebert’s Est., 169 Wash. 402, 407,14 P.2d 6 (1932). In both
cases, the husbands owned all or substantially all of the stock of a corporation at
the time of marriage and their salaries were based on fair market compensation;
therefore, the courts held that the salaries had a community property interest.
Hamlin, 44 Wn.2d at 858-59; Hebert, 169 Wash. at 407. Here, when the couple
was married, they owned 40 percent of the corporation. Thomas was not a
majority owner until after the separation when his income was no longer a
community asset, just as Kari’s salary was not. Accordingly, Hamlin and Herbert
are not applicable in this case, and Kari is not entitled to Thomas’ salary.
Therefore, the trial court did not err.
3. 2020 Acquired Shares
Lastly, Kari claims that the court erred in characterizing the additional
6,000 EBC shares as separate property. Kari asserts that without clear and
convincing evidence that the shares were acquired with separate earnings, they
must be characterized as community property. Additionally, Kari notes that the
purchase was funded through a loan from EBC, a community property business.
7 No. 87045-9-I/8
Thomas would not have been able to fund the loan without the community
interest in EBC.
Kari misstates the burden of proof for property acquired while separated.
Because the couple was separated when Thomas bought the additional shares,
the shares are presumed separate property. A spouse seeking a community
interest in separate property must overcome the presumption that separate
property maintains its separate character, without evidence to the contrary.
Hamlin, 44 Wn.2d at 857–58.
The character of an asset is determined by the character of the cash. In
re Marriage of Chumbley, 150 Wn.2d 1, 8, 74 P.3d 129 (2003). Although few
cases address the characterization of stocks, courts have used real property
rules analogously. Chumbley, 150 Wn.2d at 7. Under the mortgage rule, used to
determine the character of real property, the character of the ownership of the
debt balance is determined by the character of the credit pledged to secure the
funds. Chumbley, 150 Wn.2d at 7. The character of the property does not
change if the debt is paid off by funds of a different character. Chumbley, 150
Wn.2d at 8.
Here, Kari asserts that Thomas would not have the ability to acquire the
loans for the additional shares but for the parties’ community interest in EBC.
Thomas did not provide evidence to support that the couple’s community
property or interest in EBC was not used to purchase the additional funds.6
6 At oral argument, Thomas asserts that the virtue of his relationship between LavaGlo, his separate entity, and EBC secured the loan for the additional shares. Thomas claims the debt obligation was incurred by Thomas,
8 No. 87045-9-I/9
Thomas testified that LavaGlo, his separate company, obtained the funds
for the loan to pay for the down payment for the additional EBC shares. Thomas
also testified that he repaid the loan with his separate property. However, the
court did not appear to consider the evidence supporting that the loan for the
additional shares was secured through the community’s shares in EBC. While it
was not error for the court to consider Thomas’s sole contribution to the
repayment of the loan when making its determination regarding distribution of the
value of the additional shares, the evidence does not support the trial court’s
characterization of the loan itself. We remand to the trial court to make the
proper characterization of the property and to consider that when making its final
distribution.
Tye Street Building
Next, Kari asserts that the court erred in not crediting her for her interest in
the Tye Street building because the property is owned by a separate business.
Kari claims that because Tec Enterprises is separate entity that was created
during the marriage, she should have been awarded half the value for her
interest in Tye Street. Because Van Zandt testified that he factored in the value
of the property and the value of the use of Tye Street in his valuation of EBC,
there was no error.
The party claiming error regarding the court’s finding of fact has the
burden of showing that a finding of fact is not supported by substantial
not by the community. Lastly, Thomas conceded that the cash used for the loan came from EBC, but it was not community property. Thomas stated that any money that he received from EBC after the separation was his separate property.
9 No. 87045-9-I/10
evidence. Fisher Props., Inc. v. Arden-Mayfair, Inc., 115 Wn.2d 364, 369, 798
P.2d 799 (1990). The presumption is in favor of the trial court’s findings. Fisher
Props., 115 Wn.2d at 369. “ ‘Substantial evidence exists if, when viewing the
evidence in the light most favorable to the prevailing party, a rational trier of fact
could find the fact more likely than not to be true,’ ” or, in short, by a
preponderance of the evidence. In re Dependency of A.C., 1 Wn.3d 186, 193,
525 P.3d 177 (2023) (quoting In re Parental Rights to X.T., 174 Wn. App. 733,
737, 300 P.3d 824 (2013)). When expert testimony is given, the factfinder has
wide latitude in the weight to give the expert’s opinion. In re Marriage of Sedlock,
69 Wn. App. 484, 491, 849 P.2d 1243 (1993).
Though Kari now contests the court’s ruling regarding Tye Street, she did
not present evidence that differed from Van Zandt’s testimony, nor did she offer a
valuation of EBC without the value of Tye Street. Ultimately, Kari conceded that
Tye Street is tied up in the valuation of EBC, should stay with EBC, and no
liquidation should occur because the value of the building is encapsulated within
the testimony and report of the expert.7 Substantial evidence supports the
court’s determination regarding Tye Street.
Property Division
Kari contends that the court erred when it held that the appropriate time of
valuation of the property was in 2016 when the couple separated, instead of
2024 when divorce proceedings began. Kari claims this error resulted in a
7 When delivering its findings, the court asked the parties to confirm that Tye Street was owned by EBC. Thomas confirmed and asserted that Tye Street was in the evaluation of EBC. Kari concurred.
10 No. 87045-9-I/11
grossly disproportionate property division. While the court has discretion to
determine whether to value the property at the date of separation, the court must,
when making the distribution of the property, characterize it properly, consider
any appreciation or depreciation in value, and consider the circumstances of the
parties to make a just and equitable distribution. Because we are remanding to
the trial court based on lack of findings and other errors, we will not reach this
issue as the court may change the distribution of the property on remand after
the proper characterization and additional findings of fact.
We review property division under an abuse of discretion standard. In re
Marriage of Doneen, 197 Wn. App. 941, 949, 391 P.3d 594 (2017). Because a
trial court is in the best position to determine what is a fair distribution of the
property in a marriage dissolution proceeding, an appellate court will reverse a
trial court’s decision only if a manifest abuse of discretion occurred. Doneen, 197
Wn. App. at 949. A court’s decision is manifestly unreasonable if it is outside the
range of acceptable choices, given the facts and the applicable legal standard.
In re Marriage of Larson, 178 Wn. App. 133, 138, 313 P.3d 1228 (2013). RCW
26.09.080 states that the court shall, without regard to misconduct, make such disposition of the property and the liabilities of the parties, either community or separate, as shall appear just and equitable after considering all relevant factors including, but not limited to: (1) The nature and extent of the community property; (2) The nature and extent of the separate property; [and] (3) The duration of the marriage.
11 No. 87045-9-I/12
Under RCW 26.09.080, when making a disposition of property, the court shall
consider the economic circumstances of each spouse at the time the division of
property is to become effective. In issues of property division, the paramount
concern is the economic condition that a dissolution decree leaves the parties. In
re Marriage of Stenshoel, 72 Wn. App. 800, 812-13, 866 P.2d 635 (1993).
Moreover, if the property is valued at the trial date, instead of the separation
date, appreciation and depreciation in value should be considered in making an
equitable division. Lucker v. Lucker, 71 Wn.2d 165, 168, 426 P.2d 981 (1967).
The court shall then make a disposition of the property. RCW 26.09.080. The
character of the property is not controlling, rather, the court must ensure the
division of property is just and equitable. In re Marriage of Irwin, 64 Wn. App. 38,
48, 822 P.2d 797 (1992). Just and equitable distribution does not mean that the
court must make an equal distribution. Larson, 178 Wn. App. at 138. The
ultimate question is whether disposition is fair and equitable under all the
circumstances. In re Marriage of Janovich, 30 Wn. App. 169, 171, 632 P.2d 889
(1981).
As stated supra, the court did not err in finding the time of valuation was
2016 when the couple separated. Next, we must determine whether Kari
received an equitable distribution. Although the court found that the date of
valuation was 2016, RCW 26.09.080 is clear that the court shall consider
economic circumstances of the parties at the time of the division of property, not
at the time of the property valuation. Thus, the court’s failure to consider the
parties circumstances at the time of trial, as well as any appreciation or
12 No. 87045-9-I/13
depreciation in the value of the property when making the distribution of the
property, was error. We remand for the court to distribute the parties’ properly
after considering their circumstances at the time of the dissolution trial.
Spousal Maintenance
Kari also asserts that the trial court erred in its denial of spousal
maintenance because Kari was left in disparate economic circumstances
compared to Thomas. Because the trial court did not issue findings, we remand
for the trial court to determine whether spousal maintenance is appropriate after
considering the relevant factors and its final property distribution.
The award of spousal maintenance is reviewed for abuse of discretion. In
re Marriage of Wilcox, 3 Wn.3d 507, 517, 553 P.3d 614 (2024). Under
RCW 26.09.090, “the maintenance order shall be in such amounts and for such
periods of time as the court deems just.” The court shall consider all relevant
factors, including but not limited to: financial resources of the party seeking
maintenance, standard of living during the marriage, duration of the marriage,
age, physical and emotional condition of the spouse seeking support, and ability
of the spouse to pay maintenance. RCW 26.09.090.
In the trial court’s ruling, the judge noted that Thomas paid 90 months of
spousal maintenance at $3,000 a month. Although the court considered those
payments reasonable for a pending divorce, the court did not address the parties’
current circumstances. The court failed to mention the statutory factors or enter
findings regarding its denial of Kari’s request for maintenance. We remand for
13 No. 87045-9-I/14
the court to consider the maintenance request together with any changes it may
make regarding the property distribution.
Equalizing Payment’s Interest Rate
Kari contends that the court erred in awarding less than the statutory
interest on her equalizing payment. Thomas claims that the court did not err
awarding Kari less than the statutory rate because it considered testimony about
EBC business risks. Because the trial court did not provide findings for awarding
a lower interest rate, we remand for the court to issue findings.
Awarded interest rates are reviewed for abuse of discretion. Stenshoel,
72 Wn. App. at 812. A trial court abuses its discretion if it provides for an interest
rate below the statutory rate without setting forth adequate reasons for doing so.
Stenshoel, 72 Wn. App. at 812. RCW 4.56.110 requires that interest on
judgments shall accrue at the maximum rate permitted under RCW 19.52.020.
The trial court must state reasons for awarding a party to a marital dissolution
less than the statutory interest rate. In re Marriage of Harrington, 85 Wn. App.
613, 632, 935 P.2d 1357 (1997). If the record is silent on the reasons the court
decided to set the interest rate below the statutory rate, the appellate court
should not search the record for reasons to justify the exercise of discretion.
Harrington, 85 Wn. App. at 632.
Here, the final divorce order states that the interest per annum is seven
percent but did not provide reasons for the lower rate. Therefore, because the
record is silent regarding why the court reduced the interest rate, we remand for
14 No. 87045-9-I/15
the court to make a finding regarding its decision to order less than the statutory
interest rate.
Attorney Fees
On appeal, Kari requests attorney fees.8 Under RAP 18.1, this court may
award fees if authorized by law. RCW 26.09.140 controls attorney fees on
appeal. To determine fees on appeal, the court “examine[s] the arguable merit of
the issues on appeal and the financial resources of the respective parties.”
Mansour v. Mansour, 126 Wn. App. 1, 17, 106 P.3d 768 (2004). Parties must file
an affidavit of financial need at least 10 days before argument. RAP 18.1(c).
Disregarding the evidence outside the record in Kari’s affidavit, Kari’s
financial declaration demonstrates that her reasonable monthly expenses are
greater than her monthly net income. Thomas has not provided information that
indicates that he does not have the ability to pay. We grant Kari’s request for
attorney fees and remand to the trial court for the determination of a reasonable
amount.
Remand
The trial court erred in finding that the loan to purchase additional shares
was funded with Thomas’ separate property. The court also erred in not
including findings regarding the: (1) loan for additional shares, (2) property
8 Kari submitted a financial affidavit. Thomas did not submit a financial affidavit. Instead, Thomas replied to Kari’s declaration with an objection and motion to strike. The objection and motion also requested sanctions or the award of costs and attorney fees for Kari improperly filing her affidavit. Because Kari properly filed a financial affidavit as required under RAP 18.1(c), Thomas’s motion to strike and request for sanctions are denied.
15 No. 87045-9-I/16
division, (3) denial for spousal support, and (4) reduced interest on Kari’s
equalizing payment.
We remand for the trial court to: (1) issue findings and properly
characterize the loan used to purchase the additional shares in 2020 as
community property, and to determine how Thomas’s repayment of the loan with
his separate earnings should effect the property distribution, (2) make a
determination regarding the property distribution based on this court’s ruling and
the parties’ financial status at the time of dissolution in 2024, (3) reevaluate and
enter findings regarding Kari’s request for spousal support, (4) issue findings
regarding setting the seven percent per annum interest rate on Kari’s equalizing
payment, and (5) determine the appropriate amount for Kari’s attorney fees on
appeal, and to amend the Final Divorce Order (Decree of Dissolution) as
necessary.
WE CONCUR: