THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

LARISSA SOBJACK, ) No. 80355-7-I ) Appellant, ) DIVISION ONE ) v. ) UNPUBLISHED OPINION ) CASEY SOBJACK, ) ) Respondent. ) )

ANDRUS, A.C.J. — Larissa Sobjack appeals the trial court’s determination that real property her husband, Casey, 1 purchased before marriage, but subsequently quitclaimed to the marital community remained Casey’s separate property. Because the trial court’s legal conclusion that the property at issue is Casey’s separate property does not flow from its factual findings and its findings are not supported by substantial evidence, we reverse.

FACTS

Casey and Larissa Sobjack married on September 17, 2011. Larissa has two children from a previous relationship, whom Casey adopted. The couple’s son was born the year after they married.

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In 2012, Jason’s mother, who held a power of attorney for her son, executed a quitclaim deed, transferring his 50 percent interest in the Hawthorne Street property to Casey and Larissa, thus giving Larissa a 75 percent interest and Casey a 25 percent interest in the property. In 2013, Casey and Larissa decided the Hawthorne Street home was too small for their family and they sold it, netting $95,427.69, the proceeds of which they deposited into their joint bank account.

A few months later, the couple purchased a family home at 8452 Valley View Road in Custer, Washington (the Valley View property) for $277,000. Because they qualified for financing through the Veterans’ Administration, the couple borrowed the entire purchase price.

In 2013, the couple sold the Yew Street property for $265,000, and deposited net proceeds of $94,255.78 in their joint bank account. In 2014, Casey and Larissa purchased a property located on Poplar Place in Ferndale at a foreclosure auction for $131,500 in cash, using funds from the joint account. Casey remodeled this property and the couple sold it in 2015 for $217,762, netting $194,000 from the sale. They deposited the funds from this sale into their joint account.

In December 2015, Casey used $163,964.86 in community funds from the joint bank account to pay off the mortgage on the Aldergrove property. Casey testified that once he and Larissa married, he did not have an account solely in his name into which he deposited funds. They commingled all of their funds—rental income, wages, Casey’s disability income, and proceeds from the sales of various pieces of real estate—into the marital community savings and checking account.

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Once the Aldergrove property was free of debt, Casey became concerned about the couple’s exposure to liability should a tenant or a visitor injure themselves and bring suit against them:

So it was my fear that either a tenant, [or] someone out on the property [would] get injured, try to sue and you have a property that is unprotected . . . and a huge asset and then also I had a fear as well is a neighbor kid comes over to the family home, jumps on the trampoline, breaks their neck, tries to sue myself or Larissa or come after that property, so that was my reasoning to protect it in the LLC and protect our names as well. Casey suggested to Larissa that the couple create a limited liability company to hold title to their rental properties as a way to shield themselves from personal liability. He did his own research and determined this step “was the best thing that I needed to do to protect us.” Casey testified he wanted Larissa to be involved in the formation of the LLC and to sign the documents because he felt it was important to protect both of them from potential liability.

Casey hired Bellingham attorney Steve Shropshire to prepare the documents to create the LLC and to transfer ownership of the properties to the LLC. On October 3, 2017, Casey and Larissa executed an agreement creating MMR Properties LLC (MMR)—the name based on the first initials of their three children—with the sole member being “the marital community of Casey Sobjack and Larissa Sobjack, husband and wife.” On November 1, 2017, Shropshire prepared two quitclaim deeds by which Casey first transferred his interest in the Aldergrove property to the marital community, then Casey and Larissa both transferred the marital community’s interest in the property to MMR.

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Casey’s quitclaim deed to the marital community provided:

The Grantor, Casey Sobjack, a married man, for and in consideration of establishing community property pursuant to WAC 458-61A- 203(1) and no other consideration, conveys and quit claims to Grantees Casey Sobjack and Larissa Sobjack, husband and wife, all Grantor’s interest in the [Aldergrove property]. Casey testified that the purpose of his reference to creating community property pursuant to this regulation was to take advantage of this tax exemption to avoid paying $6,000 in excise taxes.

The quitclaim deed Casey and Larissa signed to transfer the Aldergrove property to the LLC provided:

The Grantors, Casey Sobjack and Larissa Sobjack, husband and wife, for and in consideration of a mere change in identity pursuant to WAC 458-61A-211(2)(a), and no other consideration, convey and quit claim to Grantee, MMR Properties, LLC . . . all Grantors’ interest in the [Aldergrove property]. Casey acknowledged that there was, at the very least, a community interest of $163,965, in the equity of the Aldergrove property.

At the time they formed MMR, the couple opened a checking and savings account in MMR’s name and transferred $17,500 in community funds into the new accounts. Although Larissa did not have signatory authority on the MMR accounts, Casey had intended for her to do so; she merely neglected to go to the bank to complete the necessary signature cards. Once these accounts were opened, rent payments were thereafter deposited into MMR’s account.

In May 2018, Larissa filed for dissolution of the marriage and the parties separated shortly thereafter. Casey moved into one of the two Aldergove rental units in October 2018 and lived there at the time of trial. But Casey continued to No. 80355-7-I/6 rent out the second unit. Aldergrove is thus both debt free and income producing property.

Larissa asked the trial court to treat Aldergrove as community property because that was the parties’ intent as reflected in the quitclaim deed Casey signed in 2017. Casey, however, testified he had no discussions with Larissa about making Aldergrove community property, he considered it to be his separate property, and he had no intention of converting it to community property.

At the time of trial, Casey’s net monthly income was $4,432.09 and Larissa’s was $1,258.97. Casey’s income figure, however, does not take into account potential rental income from Aldergrove. The parties stipulated at trial that the Aldergrove property is currently valued at $375,000.00 and the Valley View property is valued at $400,000, with an outstanding mortgage of $249,162.

The court found that MMR was a community asset and divided the cash remaining in its bank account equally between the parties. But it concluded that the Aldergrove property, although owned by MMR, remained Casey’s separate property, finding that “[t]he substantial testimony was that transfer to MMR was done to provide corporate liability shielding . . .” and thus awarded the property to him. The trial court awarded Larissa the Valley View property and assigned her 100 percent of the mortgage, resulting in a net award to her for this property of $150,838. The court further concluded that Larissa had a right to recover 50 percent of the $163,964 in community funds Casey used to pay off the Aldergove mortgage. After dividing bank accounts and personal property, the court ordered Casey to make an equalization payment of $18,861.75 to Larissa. The court also No. 80355-7-I/7

ordered Casey to pay Larissa $1,762.75 per month in spousal maintenance from April to September 2019, to cover the Valley View mortgage to give Larissa time to refinance the house, and awarded Larissa $5,000 in attorney fees.

Larissa moved for reconsideration, arguing that Aldergrove, as an asset of the community-owned LLC, could not legally be Casey’s separate property, and the court’s division of property was inequitable because of the resultant disparity in the award between the parties. The trial court denied this motion and Larissa appealed.

ANALYSIS

Larissa argues that the trial court erred in characterizing Aldergrove as Casey’s separate property. We agree because this legal determination does not flow from the trial court’s findings of fact and its findings are not supported by substantial evidence.

In performing its obligation to make a just and equitable distribution of properties and liabilities in a marriage dissolution action, the trial court must characterize the property before it as either community or separate. In re Marriage of Groves, 10 Wn. App. 2d 249, 254, 447 P.3d 643 (2019). A trial court’s characterization of property is a question of law reviewed de novo. Id. We review factual findings supporting the trial court's characterization for substantial evidence. In re Marriage of Mueller, 140 Wn. App. 498, 504, 167 P.3d 568 (2007). We then determine if the trial court’s conclusions of law flow from its findings of fact. Littlefair v. Schulze, 169 Wn. App. 659, 664, 278 P.3d 218 (2012).

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The character of property as separate or community is determined at the date of acquisition. In re Estate of Borghi, 167 Wn.2d 480, 483, 219 P.3d 932 (2009). Property obtained by one spouse before marriage is presumed to maintain its separate character in the absence of sufficient evidence to show an intent to transmute the property from separate to community property. Id. at 484. The evidence must show the intent of the spouse owning the separate property to change its character to community property, generally demonstrated through a quitclaim deed, other real property transfer, or community property agreement. Id. (quoting Guye v. Guye, 63 Wash. 340, 115 P. 731 (1911)).

In this case, we have no written findings from the trial court regarding the basis on which it characterized Aldergove. The written findings merely recite that this property is Casey’s separate property. As a general rule, we review the final order, not the oral ruling, to determine the adequacy of the court’s findings. Ferree v. Doric Co., 62 Wn.2d 561, 566-67, 383 P.2d 900 (1963). The oral ruling generally has “no final or binding effect, unless formally incorporated into the findings, conclusions, and judgment.” Id. The findings here incorporated by reference the court’s oral rulings, but only as to “the court’s specific valuation of property not stated herein.” The court did not incorporate by reference his oral findings regarding the characterization of Aldergrove. However, when written findings of fact are incomplete, we can look to the oral decision to understand the court’s reasoning. Grieco v. Wilson, 144 Wn. App. 865, 872, 184 P.3d 668 (2008).

The trial court stated, in its oral ruling, that:

[I]t was the intent of the [parties’] transactions leading up to the transfer of the Aldergrove property to MMR . . . to shield the property, the parties, and their marital community and that this intent yields No. 80355-7-I/9

insufficient evidence to support the burden of proof that the Aldergrove property is now a community asset. The Aldergrove property is Mr. Sobjack’s separate property. We do not take issue with the trial court’s finding as to the parties’ intent in transferring Aldergrove to the marital community and then to MMR, a marital community LLC. There is substantial evidence in the record to support this factual finding. But the trial court’s conclusion that the property is Casey’s separate property does not flow from this finding.

First, Casey could have shielded Aldergrove from exposure to judgment creditors by simply transferring that property into an LLC that he held in his own name. There is nothing about his intent to protect the property that negates the quitclaim deed’s declaration of purpose—the creation of community property.

Second, Casey testified he wanted to protect not just himself, but Larissa and the marital community, from exposure in the event any neighborhood children injured themselves at the Valley View family home. He was looking for a way to protect the marital community’s assets, specifically seeking to protect himself and Larissa from liability. He accomplished this goal by ensuring that Larissa participated in the formation of the LLC, making the marital community the sole member of it, and by having the marital community transfer Aldergrove into the LLC. Again, his testimony and the trial court’s finding that Casey intended to protect the marital community does not support the conclusion that he lacked the intent to transmute Aldergrove from separate to community property.

Casey relies on the Supreme Court’s decision in Borghi to argue that the language of the quitclaim deed from Casey to the marital community is insufficient evidence of his intent to change the character of Aldergrove. But he overstates No. 80355-7-I/10

the holding of Borghi. In that case, the decedent, Jeannette, bought real property under a real estate contract before her marriage to Robert. After the couple were married, the seller of the property, Cedarview Development, executed a special warranty deed to Robert and Jeanette, as husband and wife. Id. at 481-82. After Jeannette died, Robert brought a declaratory judgment action to resolve a dispute with Jeannette’s son from a prior relationship over the characterization of the property. Id. at 483. The Supreme Court held that Cedarview’s inclusion of Robert’s name on the special warranty deed did not indicate whether Jeannette intended to transmute her separate property into community property. Id. at 491. Because the focus is on the intent of the spouse who originally owned the separate property, the deed was insufficient by itself to rebut the presumption of separate property.

Borghi is distinguishable. In this case, Casey—not a third party—executed a quitclaim deed transferring Aldergrove to the marital community and expressed his intention in the deed itself: to create community property. Consistent with Borghi, Washington courts routinely hold that a quitclaim deed or valid community property agreement executed by the owning spouse can be sufficient evidence to demonstrate that spouse’s intent to transmute separate property to community property. See Volz v. Zang, 113 Wash. 378, 383, 194 P. 409 (1920) (“separate property may be changed by a proper conveyance or agreement into community property”); Groves, 10 Wn. App. 2d at 260-261 (upholding community property agreement requiring equal division of all separate property); In re Estate of Verbeek, 2 Wn. App. 144, 158, 467 P.2d 178 (1970) (mutual written promises to

- 10 - No. 80355-7-I/11 convert separate into community property are sufficient evidence of intent to transmute). Casey argues that his quitclaim deed to the marital community does not demonstrate an intent to transmute Aldergrove to community property because the deed “expressly limits its effect to relieving the parties of having to pay excise tax.” The trial court appears to have agreed, viewing MMR essentially as “a shell,” created for the sole purpose of shielding the marital community from liability and taxes. But again the trial court’s legal conclusion does not flow from a finding that Casey entered into the quitclaim deed to avoid paying excise taxes. The tax regulations on which Casey and the trial court relied simply do not support this theory. First, Casey’s quitclaim deed referred to “establishing community property pursuant to WAC 458-61A-203(1).” 2 WAC 458-61A-203(1) exempts from excise tax real estate transfers “that establish or separate community property.” The only way in which Casey could legally avoid paying excise tax on this transfer was if he intended to create community property. Second, the quitclaim deed Casey and Larissa signed to transfer Aldergrove from the marital community to MMR refers to WAC 458-61A-211, which exempts from excise tax the transfer of property from an owner to a limited liability company. 3 Under this tax regulation, Casey could have transferred Aldergrove,