Court Opinion

ID: 2753713
Source: CourtListenerOpinion
Date Created: 2014-11-20 18:13:15.630838+00
Date Added: 2024-06-11T09:32:34.452413
License: Public Domain

FILED 

                                                                      November 20, 2014 

                                                                  In the Office of the Clerk of Court 

                                                                W A State Court of Appeals, Division III 

         IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON 

                            DIVISION THREE 

In re the Marriage of:                        )
                                              )         No. 32041-3-111
SURESH PHILIP,                                )
                                              )
                     Appellant,               )
                                              )
       and                                    )
                                              )         UNPUBLISHED OPINION
JAYAP. PHILIP,                                )
                                              )
                     Respondent.              )

       SIDDOWAY, C.J.      Dr. Suresh Philip appeals the trial court's division of his and

his ex-wife's assets at the conclusion of their marital dissolution trial. He challenges the

trial court's adjustments to the parties' distributions to account for $251,000 of

community assets that Dr. Philip used to repay his parents for two long-outstanding

separate property loans, a few months before he filed for divorce.

       Dr. Philip characterizes the court's adjustment as a right of reimbursement and

argues that it was improperly imposed on the merits and in its amount. The

characterization of the adjustment as a right of reimbursement is challenged by Ms.

Philip. We conclude that however characterized, the adjustment was correctly calculated
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             to accomplish the trial court's stated objective and that Dr. Philip fails to demonstrate an

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             abuse of the trial court's discretion. We affirm.

                                  FACTS AND PROCEDURAL BACKGROUND
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ii                  Dr. Suresh Philip and Jaya Philip married in 1990. Dr. Philip came into the

    I        marriage with a $92,000 debt to his parents-money he borrowed to help finance his
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             medical education in Nigeria. The loan required repayment at a four percent interest rate,

             compounded annually.
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i                   After getting married, Dr. Philip and Ms. Philip moved to North America. Dr.
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    J	       Philip spent a year in Canada preparing to take the several medical examinations required
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Ii           to practice medicine in the United States or Canada. Ms. Philip lived with her parents in

             Connecticut during that time frame, traveled to visit him, and provided financial support
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I            toward his expenses. Dr. Philip allegedly borrowed another $28,000 from his parents
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f	           while living in Canada. Ms. Philip claims to have known nothing about either loan

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             before Dr. Philip filed for divorce. Dr. Philip agreed at trial that both loans were his

             separate property.
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I                   In September 2010, Dr. Philip repaid the loans to his parents in their entirety: with

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             interest, he paid them a total of $251 ,000. He used community funds from the couples'

             Vanguard investment account. The payment was made without Ms. Philip's knowledge

1j 	         or consent. Two months later, Dr. Philip filed for divorce. The existence of the loans
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     No. 32041-3-111
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     and the fact that he had liquidated a quarter million dollars of community investments to

     repay them came to light during a divorce mediation.

            The dissolution case proceeded to a three-day trial, at the conclusion of which Dr.

     Philip proposed a fifty-fifty split of the parties' property. While a written summary of the

     proposed division that Dr. Philip's lawyer handed to the court during closing argument is .

     not in our record, I the lawyer argued that following a fifty-fifty split, Dr. Philip should be

     treated as having received a prior distribution of $115,000 in order to account for his use

     of community funds to repay the separate loan. Rounded, $115,000 was one-half of the

     $251,000, less a $10,000 "benefit" to Ms. Philip from his largely parent-financed medical

     education. 2 Report of Proceedings (RP) at 165-66.

            For her part, Ms. Philip questioned whether the $251,000 obligation to Dr. Philip's

     parents was even bona fide, characterizing it as a "golden parachute" for Dr. Philip, and

     part of his "divorce planning." 2 RP at 182-83. In addition to seeking an adjustment for

     the withdrawal from the Vanguard account, she sought a judgment for some $120,000 in

     arrears on mortgage and child support payments that Dr. Philip had been court-ordered

     (but failed) to pay, and asked the court to award her continuing spousal maintenance, find

            I Dr. Philip did not designate as clerk's papers any of the trial exhibits or any other
     documents reflecting individual values of the parties' assets. While most of the values
     were recapped by the trial court when it announced its oral decision, notably lacking is a
     definitive figure on the exact value of the Vanguard account at the time of trial.

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No. 32041-3-111
In re Marriage ofPhilip

that the doctor was voluntarily underemployed, and impute $330,000 a year in income to

him for purposes of calculating child support.

       In announcing its oral decision the day after closing arguments, the court divided

most of the parties' assets fairly evenly, but awarded Ms. Philip the entire remaining

value of the parties' Vanguard account. Because the parties dispute what the trial court

had in mind in its handling of the Vanguard account, we quote all that it had to say on the

subject.

               [THE COURT:] Okay, I have to deal with the two-hundred-and­
       fifty-one-thousand dollar debt, or dollars that were paid to Mr. Philip[']s
       parents. That debt and I looked at the promissory note, uh, that was a
       separate property debt he brought into the marriage .... The two-hundred­
       and-fifty-one-thousand dollars is a separate debt for Mr. Philip[]. In
       addition there was a total of approximately a hundred-and-twenty-thousand
       dollars of unpaid child support, spousal support and mortgages. Those are
       from the temporary orders. The May, has to you know pay what he can,
       that I didn't accept that argument. That was an order, he was obligated to
       pay that. She's entitled to reimbursement for that.

2 RP at 214. Ms. Philip's lawyer at that point asked whether the trial court would enter.a

$120,000 judgment for the arrears in court ordered payments. The following colloquy

and further ruling followed:

                 MR. TEL QUIST [Dr. Philip's lawyer]: No.
                 THE COURT: No.
                 MR. TINDELL [Ms. Philip's lawyer]: It goes onto something
       else[?]
              THE COURT: No, I'm still going. I'm going, what I'm going to do
       and that by the way is through this May, what I'm going to do is award the
       Vanguard account to her then she gets no judgment against him and she is

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     No. 32041 ~3-III
     In re Marriage ofPhilip

           compensated for the two~hundred~and-fifty~thousand that was paid of
           community assets that was paid to his parents.
                   MR. TELQUIST: Your Honor, did you, isn't one-half of that
           community, the two-hundred-and-fifty~thousand dollars, I did argue that
           one-half, it is Doctor Suresh's by community property law. So you're
           giving her the entire two~ fifty?
                   THE COURT: It's all his separate debt.
                   MR. TELQUIST: I understand but he used community funds of
           which he owns one half. I just want to make sure I'm clear.
                   THE COURT: Okay, yet he took community funds and paid his
           separate debt and uh, it wasn't, you know the community funds he took and
           he took em all, they were community funds, they were applied to a separate
           property debt. So he doesn't get credit for half of it even. He just, and I
           can understand why he did it. I don't have any problem with him doing it.
           But uh, but it's a community debt. Okay there's the issue of spousal
           maintenance. Uh, I'm going to order spousal maintenance of fifteen­
           hundred dollars through the rest of this year. Okay, that means that she will
           have had fifteen-hundred spousal maintenance for three years. By that time
           it will give her an opportunity to sell the house ... and she's getting
           considerably more wealth then he's getting in terms of having the ability to
           pay her own way. So-
                   MR. TINDELL: Urn, okay there's no judgment I understand that.
                   THE COURT: There will be no judgment against him.

                  MR. TELQUIST: I just, my two forecast [sic] Your Honor, I don't
           think the analysis is correct, I think he can use his portion of the community
           to pay his separate debt, one~halfhe is entitled to.
                  THE COURT: That's fine. 

                  MR. TELQUIST: But we can address that later. 

                  THE COURT: Okay. 

                  MR. TINDELL: Well regardless of that, the court still has the 

           discretion to make a disproportionate-

                  THE COURT: Well I've made my decision. 

                  MR. TELQUIST: Right. 

                  THE COURT: And Mr. Telquist is right. 

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                  MR. TELQUIST: We'll address that later. Okay. 

                  THE COURT: So we're in recess . 

 !   2 RP at 215-18.

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    No. 32041-3-III
    In re Marriage ofPhilip

           When proposed findings, conclusions, and a decree were presented several months

    later, Dr. Philip requested only one modification to the asset distribution announced in

    the court's oral ruling: he asked the court to make an adjustment in Dr. Philip's favor to

    account for $60,000 that had been distributed to Ms. Philip from the Vanguard account

    during the pendency of the divorce. Dr. Philip was given a $30,000 adjustment in his

    favor on account of that distribution.

           Dr. Philip timely appealed.

                                             ANALYSIS

           Dr. Philip assigns error to the trial court's "granting the community a right of

    reimbursement" for the $251,000 paid by Dr. Philip to retire his separate debts and to the

    trial court's "awarding the full community 'right of reimbursement to Ms. Philip alone."

    Br. of Appellant at 3 (capitalization omitted). He argues that "[a] right of reimbursement

    is based on equitable principles" that "does not arise as a matter of right merely because

    community funds were used to satisfy a separate obligation." Id. at 10-11. As equitable

    grounds cutting against a right of reimbursement, he argues that Dr. Philip had the

    statutory right to manage and control community funds during the existence of the

    marital community, that he did not breach a fiduciary duty in repaying the debt, and that

    Ms. Philip received a reciprocal benefit from Dr. Philip's parents' financing of his

    medical education. Assuming grounds existed for imposing a right of reimbursement, he

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    No. 32041-3-111
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    argues that the trial court erred in "reimbursing Ms. Philip for the entire $251,000.00."

    Id. at ii (capitalization omitted).

           Ms. Philip's overarching response is that the trial court did not impose a right of

    reimbursement on account of Dr. Philip's repayment of the loan, it simply took the

    repayment into consideration in making an equitable division of the property. We first
1   address the dispute over the characterization of the adjustment and then tum to the
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f   arithmetic dispute over its amount.

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                     Right ofreimbursement or just and equitable distribution

           A variety of circumstances have been identified by Washington decisions in

    which, as a matter of fairness, one spouse should have a right of reimbursement upon

    dissolution of the marriage because the other spouse, during marriage, appropriated

    community assets to his or her separate benefit or subjected them to loss. Like its

    division of property, a trial court's recognition ofa right of reimbursement is reviewed

    for abuse of discretion. In reMarriage ofMiracle, 101 Wash. 2d 137, 139,675 P.2d 1229

    (1984) (review of right of reimbursement); In re Marriage ofTower, 55 Wash. App. 697,

    700, 780 P.2d 863 (1989) (review of distribution of property). But a right of

    reimbursement is reviewed for its theoretical basis and factual support in ways that a

    division of property is not, and Dr. Philip argues that we should engage in that more

    critical review. Ms. Philip points out that the trial court never mentioned a "right of

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No. 32041-3-111
In re Marriage 0/ Philip

reimbursement" and asks us to review only whether the trial court's division of assets

was just and equitable.

       In an action for dissolution, the trial court must distribute the parties' assets and

liabilities in ajust and equitable manner. RCW 26.09.080; In re Marriage o/Kraft, 119
Wash. 2d 438, 449, 832 P.2d 871 (1992). "The key to an equitable distribution of property

is not mathematical preciseness, but fairness." In re Marriage o/Clark, 13 Wn. App.

805,810,538 P.2d 145 (1975). This requires the court to exercise discretion and

consider all circumstances surrounding the marriage. Id. Ms. Philip argues that her ex­

husband's use of community funds to repay his parents was simply one circumstance that

could be considered in dividing the parties' assets. Her position finds support in In re

Marriage o/White, 105 Wn. App. 545,554,20 P.3d 481 (2001), in which the court

pointed out that a right of reimbursement "is rarely important in a dissolution action,

because with or without it the court has broad discretion when distributing property and

debts; a dissolution court can award property to either spouse in the absence of such a

right, or a dissolution court can decline to award property to either spouse in the presence

of such a right."

       Yet as a general rule, each spouse has an equal right to solely manage the

community estate. RCW 26.16.030. In a dissolution action, trial courts do not review

and make adjustments for every selfish, improvident, or otherwise objected-to use of

community funds during marriage by the husband or the wife. If the joinder of both

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     No. 32041-3-III
     In re Marriage ofPhilip

     spouses in a transaction is not required by statute, proof that one spouse refused to

     consent to another spouse's use of community funds does not support a conclusion that

     the expenditures were outside the scope of the acting spouse's authority; "[w]here the

     facts show that husband and wife simply disagree on a matter involving management of

     community property, the decision of the acting spouse is controlling." In re Marriage of

     Schweitzer, 81 Wn. App. 589,598,915 P.2d 575 (1996), aff'd in part on other grounds,

     132 Wash. 2d 318, 937 P.2d 1062 (1997); RCW 26.16.030 (identifying exceptions to a

     spouse's equal right to solely manage and control community property).

            Accordingly, if a specific adjustment made by a trial court in dividing assets is

     based on its conclusion that one spouse is entitled to be compensated for a use of

     community assets by the other spouse that-while within the power of the acting spouse,

     was not made in the community interest-then the party burdened with the adjustment

     has a right to review for abuse of discretion, including reviewing whether the court

     misunderstood or misapplied the law. The party is entitled to raise that challenge

     whether the trial court characterized itself as imposing a right of reimbursement or as

     arriving at a just and equitable distribution.

                             The facts and the law support the adjustment

            "A disposition of community funds is within the scope of authority of the acting

     spouse so long as he or she is acting 'in the community interest.'" Schweitzer, 81 Wn.

     App. at 597 (quoting Hanley v. Most, 9 Wn.2d 429,461, 115 P.2d 933 (1941». Where

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No. 32041-3-III
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he is not, a right of reimbursement can arise. It can arise if one spouse uses community

funds to maintain or increase the value of separate property. Connell v. Francisco, 127

Wn.2d 339,351,898 P.2d 831 (1995) (citing In re Marriage ofPearson-Maines, 70 Wn.

App. 860, 869-70, 855 P.2d 1210 (1993); Harry M. Cross, Community Property Law in

Washington (Revised 1985); 61 WASH. L. REv. 13,61,67 (1986)). It can also arise if one

spouse breaches his or her fiduciary duty. Where a spouse uses community property

secretly and without any benefit to the community, he or she breaches a fiduciary duty.

Cf In re Estate ofMadden, 176 Wash. 51, 54, 28 P .2d 280 (1934) (given the husband's

confidential relationship to his wife, "'the burden would be upon [him] to show the

fairness of the transaction, the adequacy of the consideration, and the absence of fraud

and undue influence'" (quoting Beals v. Ares, 25 N.M. 459, 185 P. 780, 794 (1919))).

       Dr. Philip's opening brief anticipates being accused of breaching a fiduciary duty.

He tries to preempt the argument by characterizing the trial court's oral statement that '''I

can understand why he [repaid the loans]. I don't have [any] problem with him doing it'"

as a verity, because it was a finding to which Ms. Philip did not assign error. Br. of

Appellant at 15 (emphasis omitted) (quoting 2 RP at 216). The court's oral statement

was never reduced to a finding, however. It was made following closing arguments in

which Dr. Philip conceded that a property adjustment should be made in Ms. Philip's

favor on account of his use of community funds to pay the loans. It was made after the

trial court had already announced Ms. Philip would be "compensated for the two­

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No. 32041-3-111
In re Marriage ofPhilip

hundred-and-fifty-thousand that was paid of community assets that was paid to his

parents." 2 RP at 215. Nothing in the court's oral ruling detracts from the court's clear

legal and factual basis for making the adjustment.

       Dr. Philip also argues that even ifhis undisclosed use of community funds to

repay a separate debt might give rise in isolation to a right of reimbursement, it did not

support reimbursement here because Ms. Philip received a reciprocal benefit from Dr.

Philip's parents' financing of his medical education. Washington cases hold that because

a right of reimbursement is an equitable remedy intended to prevent unjust enrichment of

the separate owner at the cost of the community, a community that receives a reciprocal

benefit will not be entitled to reimbursement. In re Marriage ofLindemann, 92 Wn.

App. 64, 74, 960 P .2d 966 (1998). Whether to offset a right of reimbursement against a

reciprocal benefit is discretionary. Connell, 127 Wash. 2d at 351 (a court "may" offset the

community's right of reimbursement against any reciprocal benefit). The court is not

required to recognize a reciprocal benefit as an offset if it determines that an offset is not

fair and equitable.

       In announcing its decision to make an adjustment, the trial court commented on

the fact that Ms. Philip, an electrical engineer, had a bachelor's degree, and while that

might have cost less to acquire than her husband's medical degree, "she conceivabl[y]

had the same thing[,] but that wasn't a debt she brought into the marriage." 2 RP at 214.

The court also heard evidence that Ms. Philip had financially supported Dr. Philip

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      No. 32041-3-II1
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      through part of his medical studies. The court did not abuse its discretion in rejecting Dr.

      Philip's argument that Ms. Philip received a reciprocal benefit.

                                    The parties' arithmetic dispute

             Finally, Dr. Philip contends that even if the trial court enjoyed the authority to

      adjust the division of marital assets to account for his application of community funds to

I     a separate debt, it mistakenly doubled the size of the appropriate adjustment by failing to
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      recogni;ze that it is the community, not the complaining spouse, that enjoys the right of

j     reimbursement. 

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             There are different ways to account for the type of adjustment that was required 

      here. Properly applied, all lead to the same result. We will start first with the approach

      that Dr. Philip insists upon: treat the adjustment as a right of reimbursement that belongs

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      to the community.

             As the trial court observed, Dr. Philip applied the full $251,000 to a separate debt.

      To apply the "reimbursement to the community" approach correctly, then, the court must

      require that he repay the $251,000 to the community from his separate funds-otherwise,

      Ms. Philip is shortchanged. We engage in a three-step process: first, divide all the

      community funds so that Dr. Philip has "separate" assets to repay with; second, cause

      him to repay the required amount to the community; and third, divide that community

      asset for a second distribution. The following illustration assumes that the entire value of

      the parties' assets other than the Vanguard account was $1 million (even though it was

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No. 32041-3-111
In re Marriage ofPhilip

more), the entire value of the Vanguard account was $250,000 (even though it was

more),2 and that the court divided the assets fifty-fifty (it did not). Applying Dr. Philip's

preferred approach, the adjustment would be made as follows:

                                          Husband                           Wife

All non-Vanguard assets                   $500,000                        $500,000

Vanguard account                          $125,000                        $125,000

Initial distribution                   His: $625,000                   Hers: $625,000

Postdistribution repayment               ($250,000)                    Not applicable
to community from
distributed, separate assets

Second distribution, from                 $125,000                        $125,000
the community's
reimbursement

Total assets after both           $625,000 - $250,000 +           $625,000 + $125,000 =
distributions                      $125,000 = $500,000                  $750,000

        2 The Vanguard account allocated to Ms. Philip appears to have been worth
considerably more than $250,000. The trial court was clear that Ms. Philip was receiving
the account not only to compensate for the loan repayment but also to address the
$120,000 arrears in Dr. Philip's court ordered payments. An additional adjustment could
be justified by the fact that Dr. Philip took his $250,000 in community assets in
September 2010, almost three years before the decree was entered dividing the parties'          r
other assets. And in awarding her only seven more months' spousal maintenance and
refusing to impute as much income to Dr. Philip for child support calculation purposes as
Ms. Philip had requested, the trial court commented that by year-end, ..it will give her an
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opportunity to sell the house ... and she's getting considerably more wealth th[a]n he's
getting in terms ofhaving the ability to pay her own way." 2 RP at 216 (emphasis
added). Dr. Philip does not assign error to the trial court's distribution for any reason
other than those that we identify and address.
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               There was another way of making a reimbursement adjustment that would have

t       recognized that since half of the $251,000 that Dr. Philip withdrew from the Vanguard
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I!      account was his share of the community property, he should only have to account to Ms.
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        Philip for the half that was hers. But correctly analyzed, a half-size payment belonging
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)       entirely to Ms. Philip would have to be paid directly to her, not to the community-
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        otherwise, it would be reduced by half twice. Using the same assumptions, this leads to
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        the same result:
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                                             Husband 
                        Wife 

1       All non-Vanguard assets                  $500,000 
                     $500,000 

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        Vanguard account                         $125,000 
                     $125,000 

        Initial distribution                  His: $625,000 
                Hers: $625,000 

        Postdistribution adjustment     ($125,000) to be paid to W 
     $125,000 rec'd from H 

        Total assets after adjustment            $500,000 
                     $750,000 

        reimbursement

               The trial court preferred to make the desired adjustment (and others) by giving Ms.

        Philip the Vanguard account as part of the distribution. To get her to the same result, he

        had to give her at least $250,000 in value from that account. We apply the judge's

        approach and the same assumptions:

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j                                              Husband 
                          Wife 

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I    All non-Vanguard assets                   $500,000 
                       $500,000 

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l    Vanguard account                             $0 
                         $250,000 

     Total distribution                     His: $500,000 
                 Hers: $750,000 

     Post distribution adjustment           Not applicable 
                 Not applicable 

     Total assets after adjustment             $500,000 
                      $750,000 

            The allocation of at least $250,000 in community assets from the Vanguard

     account that Ms. Philip received in the property division in 2013 was the proper

     adjustment. The reason that twice as much must be allocated to Ms. Philip if it is done as

     part of the property division rather than as a postdivision charge to Dr. Philip is that the

     property being divided is already half hers; she's being compensated with     ~~their"

     property. It is only if the adjustment is made after the distribution that she has already

     received "her" half of the community property. At that point, she is entitled to be

     compensated only for "his" half, with "his" property.

            The court did not err.

                                             Attorney foes

            Ms. Philip requests attorney fees pursuant to RAP 18.9(a), characterizing Dr.

     Philip's appeal is frivolous. "An appeal is frivolous if it presents no debatable issues

     upon which reasonable minds could differ and is so lacking in merit that there is no

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     possibility of reversal." Eagle Sys., Inc. v. Emp'tSec. Dep't, 181 Wash. App. 455, 462,

     326 P.3d 764 (2014).

           Whether or not the court created a right of reimbursement was a debatable issue.

     We decline to award fees.

           Affirmed.

           A majority of the panel has determined that this opinion will not be printed in the

     Washington Appellate Reports but it will be filed for public record pursuant to RCW

     2.06.040.

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     WE CONCUR: 

     Brown, 1.

     Lawrence-Berrey, J.

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