,.,„.,; 2016 J~.- ~^ Ai"i > !

INTHE COURTOFAPPEALS FOR THE STATE OF WASHINGTON 

### Inthe Matterofthe Marriage of KENNETH S. MORELLI, Respondent, and LILY MORELLI, Appellant. No. 73746-5-1 DIVISION ONE UNPUBLISHED OPINION

FILED: June 6, 2016 

### Leach, J. — Lily Morelli appeals a decree of dissolution dissolving the marriage between her and Kenneth Morelli. She challenges the trial court's characterization and valuation of Ken's Tree Service. Also, for the first time on appeal, she claims that the trial court should have included some amount for 

### goodwill in this valuation. Substantial evidence supports the trial court's 

### characterization and valuation. We decline to consider Lily's1 goodwill argument 

### because she did not raise it in the trial court. Finally, we deny Ken's attorney fee request because his financial declaration does notestablish need. We affirm. Background 

### Ken and Lily began a committed intimate relationship in July 2005 and married inAugust2007. Ken is a professional logger. In 1994, he started a tree



### 1Forclarity, we refer to the parties by their firstnames.No. 73746-5-1 / 2
service business. He initiallyoperated this business as a sole proprietorship and converted it to a limited liability company in 2006. The business prunes and removes trees. Ken performs much of the 

### physical labor himself. He also prepares estimates and trains his few employees. Lily started helping with the business in2003. She advised Ken on his business, ran errands, and provided other services. These services increased overtime and during their relationship. 

### Ken purchased some ofthe business's equipment after they began their relationship and purchased additional equipment during their marriage. Lily understood thatthey had an oral agreementto be partners inthe business. They separated on June 14, 2013. 

### Lily hired Michael E. Guerrero, a certified public accountant, to value Ken's Tree Service. Guerrero used one method, an income approach, relying on financial information from 1999 through 2014. This included individual and 

### business tax returns plus profit and loss statements. He calculated the business's annual net cash flow and applied a capitalization rate. This produced 

### a single amount for the business, with no amount segregated for tangible or intangible assets. Guerrero testified about his expert opinion at trial and described his 

### methodology. He explained that he started with pretax income. He then calculated an income adjustment that included a number for replacement 

### compensation for an individual providing Ken's labor. His report, admitted forNo. 73746-5-1 / 3
illustrative purposes, shows that he subtracted the replacement compensation from the compensation the business reported that it paid Ken (or from zero where none was reported) to arrive at his compensation adjustment and then added owner benefits to arrive at an adjusted operating income. He then subtracted taxes, added depreciation, and subtracted capital expenditures to produce the number to which he applied a capitalization rate to calculate the value ofthe business. Guerrero also used an asset approach to determine the fair market value ofthe business's equipmentpurchased between July 2005 and thetime of trial. The trial court found that Ken's Tree Service was Ken's separate property butthatthe depreciated value ofthe vehicles and equipment acquired during the committed intimate relationship and marriage was a community asset. It also 

### found that Ken's personal services provided the primary source ofincomeearned 

### by Ken's Tree Service. As a result, it concluded that the business would not have value without Ken's work and was "nota divisible community asset." The trial court valued the vehicles and equipment acquired during the 

### marriage at $78,000 and that acquired during the period of the committed intimate relationship at $50,000. Thetrialcourtdivided othercommunityproperty assets and debts, including those related to rental properties. 

### Thetrial courtdenied Lily'srequestfor reconsideration, and she appeals.

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### Lily claims that the trial courtimproperly characterized and valued Ken's Tree Service. She argues that the trial court should have found the business to 

### be community property, improperly used book value to value the business, and failed to include goodwill in its valuation. She asks this court to reverse and remand for revaluation of the business and redistribution of community assets. 

### But Ken argues thatLily never raised the issue ofgoodwill attrial and thatRAP 2.5(a) prevents herfrom doing so on appeal. Hefurther argues that regardless, the trial court's valuation was reasonable. 

### This court recognizes that in a marriagedissolution case the trial court is 

### inthe bestpositiontoassess propertyand determine afairdivision ofassets and liabilities.2 We review de novo a trial court's characterization of property as 

### separate or community.3 We review the trial court's valuation of propertyin a 

## marriagedissolutioncase as afactissue4usinganabuseofdiscretionstandard.5 Lily challenges thetrial court's decision thatKen's TreeService is Ken's separate property. RCW 26.16.010 defines property acquired by a spouse before marriage as that spouse's separate property. When a trial court determines the parties had a committed intimate relationship, a court evaluates
2 In re Marriage of Brewer, 137 Wn.2d 756, 769, 976 P.2d 102 (1999) 

### (quoting InreMarriageofHadlev, 88Wn.2d649, 656, 565 P.2d790(1977)). 3 In re Marriage of Mueller, 140 Wn. App. 498, 503-04, 167 P.3d 568 (2007). 

### 4Inre Marriage ofLukens, 16 Wn. App. 481, 486, 558 P.2d 279 (1976). 

### s In re Marriage of Campbell, 22 Wn. App. 560, 562, 589 P.2d 1244 (1978).

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the interest ofeach party in property acquired during the relationship and makes 

### a just distribution of that property as ifitwere community property.6 Lily does not challenge the trial court's finding that Ken established Ken's Tree Service in 1994, over a decade before her relationship with Ken began. Because Ken acquired this asset before his relationship with Lilybegan, the trial courtcorrectlyfound it to be Ken's separate property. 

### Lilyclaims that In re Marriage of Fleege7 supports her position that the trial court should have valued the business as a community asset. In Fleege, the 

### Washington Supreme Court decided that the goodwill of a dental practice acquired during marriage was an asset subjectto division as community property ofthe parties. The court rejected the husband's argument that any goodwill in the dental practice was nominal and should not be included in community asset distribution.8 Because the dental practice was acquired during the parties' 

### marriage, Fleege does not support Lily'scharacterization argument. 

### Lily also asserts that the trial court improperly valued Ken's Tree Service at its book value, accounted for only six of the eight years the community 

### acquired assets for the business, and improperly adjusted downward the values her expert assigned to some of these assets. Lily correctly notes that courts 

### have rejected book value, the "value of the corporation as shown on the books of

6Soltero v. Wimer, 159 Wn.2d 428, 433, 150 P.3d 552 (2007) (quoting ]n re Pennington, 142Wn.2d 592, 602, 14 P.3d 764 (2000)). 791 Wn.2d 324, 588 P.2d 1136 (1979). 8 Fleege, 91 Wn.2d at 325.

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account after subtracting liabilities," as an accurate measure of a corporation's 

### actual value.9 This court has decided thatwhen a trial court has accepted a book value as a business's value after acknowledging that italso has a market value, the court erred because its valuation did not include the intangible value of the business.10 But, here, the trial court did not value Ken's Tree Service at book value. After rejecting Lily's argument that the entire business was a community asset, it concluded that certain business equipment and vehicles should be treated as community assets. It assigned values to those assets based on Guerrero's testimony with adjustments. It took the value of these business assets into account when itdivided the community property. The trial courtthus did not use 

### a book valuation method to assign valuetothe business.11 Lily also claims thatthe trial court accounted for only six ratherthan eight 

### years ofequipmentpurchased. Thetrialcourtfound thatequipmentand vehicles accumulated during the parties' committed intimate relationship and their 

### marriage constituted community property but used Guerrero's values only for 

### assets purchased between 2006 and 2011. It did not include any assetsfor2012
9Inre Marriage of Berg, 47 Wn. App. 754, 755 n.1, 737 P.2d 680 (1987) (citingJones v. Harris, 63 Wn.2d 559, 562, 388 P.2d 539 (1964)). 10 Berg, 47Wn. App. at757-58. 11 In its oral ruling, the trial court had added additional value to the business, $50,000, to reflect "other value in the business" that is "difficult to 

### quantify." This suggests it attributed an intangible value to the business. But lateritordered $50,000to be paid for assets acquired bythe business during the 

### period ofthe intimate relationship from 2005 to 2007 and did not reference any intangible value. It later statedthatthe identical figurewasjusta coincidence.No. 73746-5-1 / 7
because no purchases were made inthatyear. Lily apparently contends thatthe trial court should have valued equipment from July 1, 2005, when the trial court found Lily and Ken's intimate relationship began, to the time they separated in June 2013. Ken testified that Lily participated inthe company beginning only in 2006 and that equipment was not purchased in 2013 until after the parties' separation. Thus, the trial courtdid not abuse its discretion. Lily asserts that the trial court arbitrarily reduced the depreciated value of certain equipment by $4,000 withoutjustification, aside from that it "feltthat Mr. Guerrero's depreciated value figure was simply too high." But Ken also testified to certain equipment's depreciated value. Because substantial evidence supports these adjustments, Lily's challengeto them fails. 

### Finally, Lily argues that Fleege12and In re Marriage ofHall13 require that the trial court include an amount for goodwill in its valuation of Ken's Tree Service. We agree with Ken's argument that Lily's failure to raise this issue in the trial court or present evidence of goodwill value at trial defeats her argument 

### on appeal.14
12 Fleege, 91 Wn.2d at 325. 

### 13 103Wn.2d 236, 692 P.2d 175 (1984). 

### 14 RAP2.5(a) states, The appellate court may refuse to review any claim of error which was not raised in the trial court. However, a party may raisethefollowing claimed errors forthefirsttime inthe appellate court: (1) lack of trial court jurisdiction, (2) failure to establish 

### facts upon which relief can be granted, and (3) manifest error affecting a constitutional right. A party or the court may raise at 

### anytime the question ofappellate courtjurisdiction. A party may presenta groundfor affirming a trial courtdecision which was not 

### presented to the trial court ifthe record has been sufficientlyNo. 73746-5-1 / 8

In her reply brief, Lily asserts that because her expert used an income 

### approach to value the business, which applied a capitalization rate to adjusted 

### net cash flow figures, she asked the court to value intangible assets, including goodwill, and did not waive the issue. She argues that the income approach 

### Guerrero used is the same as the straight capitalization approach the Hallcourt 

### authorized as a method to value goodwill.15 Thatcase explains that once a trial court determines average net profits and those are capitalized at a definite rate, "[tjhis result is considered to be the total value of the business including both tangible and intangible assets. To determine the value of goodwill the book 

### value ofthe business' assets are subtracted fromthe total valuefigure."16 But in this case, Guerrero did not testify to a book value that could be subtracted from his total value to produce a value for goodwill. And Hall does not support the argumentthat a party provides evidence ofgoodwill value merely by employing a certain valuation approach without allocating a specific amount for goodwill. Because Lily did not raise the issue of goodwill until this appeal or present evidence that would permit the trial court to value it, Lily's claim about goodwill fails.

developed to fairly consider the ground. A party may raise a claim oferrorwhich was notraised by the party inthe trial court if another party on the same side ofthe case has raised the claim oferror in the trial court. 

### 15 See Hall, 103Wn.2d at243-44. 16 Hall, 103Wn.2dat244.No. 73746-5-1 / 9


### Ken asks for attorney fees on appeal. RCW 26.09.14017 provides this court with discretion to award fees after considering the arguable merit of the issues raised and the parties' financial resources after their timely filing of a 

### financial declaration.18 Ken has filed a financial declaration, and Lily has not. Because Ken appears to have sufficient resources to pay the $5,000 he has incurred for attorneyfees on appeal, we deny his request. Conclusion The trial court properly concluded that Ken's Tree Service was Ken's separate property. Substantial evidence supports the trial court's valuation ofthe business assets acquired during the parties' relationship. Lily failed to preserve 

### her goodwill argumentfor appeal. Additionally, she presented no evidence from which the trial court could have valued any business goodwill. We exercise our discretion under RCW 26.09.140 and decline to award Ken requested attorney fees. We affirm.

WE CONCUR:



### Vrersf*r\s~. \l K ! 17 RCW 26.09.140 states inpertinentpart, 

### Upon any appeal, the appellate courtmay, in itsdiscretion, 

### ordera party to pay forthe costtothe otherparty of maintaining the appeal and attorneys' fees inaddition to statutorycosts. 18 Inre Marriage ofRaskob, 183Wn. App. 503, 520, 334 P.3d 30 (2014).

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