Reynolds v. Bradley (In re Marriage of Reynolds)

In the Matter of the Marriage of LESLIE BRADLEY REYNOLDS, Petitioner,

and

BRIAN PATRICK REYNOLDS, Respondent.

BRIAN PATRICK REYNOLDS, Respondent, v. CHARLES E. BRADLEY, JR., third party creditor, Appellant.

No. 80276-3-I

c/w No. 81170-3-I

COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

March 29, 2021

UNPUBLISHED OPINION

APPELWICK, J. — Bradley, as assignee of a judgment against Leslie Reynolds, appeals the trial court's determination that his liens on her real property are junior to an owelty lien on that property awarded to Brian Reynolds as distribution of community property in the dissolution of the Reynolds' marriage. We affirm.

FACTS

Brian and Leslie Reynolds were married on November 2, 1991. During their marriage, the family purchased their home, which had a fair market value of $1,000,000. The Reynolds separated on April 22, 2007. The King County Superior Court entered a decree of dissolution of the Reynolds's marriage on October 1, 2008

In the dissolution action, the trial court sought to divide the community property equally. The family home was the primary community asset. The trial court awarded possession of the family home to Leslie Reynolds, subject to a lien to Bradley Reynolds for $342,115, to bear interest of six percent per year, payable on or before January 1, 2012.

In its findings of fact supporting the dissolution, the court found that Leslie Reynolds comes from a wealthy Connecticut family and was unsatisfied with the standard of living that her husband was able to provide. Leslie's father and brothers supplied significant gifts to underwrite her standard of living. As a result of overspending, substantial sums of money were owed to Leslie Reynolds's father, Charles Bradley, Sr.¹ Leslie Reynolds and her father entered into an agreement in 2003 which limited the source of repayment to sale of shares of stock Leslie owned.

On June 24, 2008, after the Reynolds had separated, Leslie Reynolds and her father entered an agreed judgment in King County Superior Court for a principal amount of $615,580, plus interest and fees. The judgment was recorded on June 26, 2008. Charles Bradley, Sr. assigned the judgment to his son, Charles Bradley Jr. (Bradley) on December 17, 2010. In the dissolution action, the trial court found that this debt was payable solely from Leslie Reynolds's separate property.

Leslie Reynolds has not paid her obligations to either Bradley or Brian Reynolds. On July 3, 2018, Brian Reynolds obtained a judgment and confirmation of his owelty lien in King County Superior Court. The judgment, which included accrued interest, totaled $606,884. The judgment provided that it would bear interest at 12 percent per year.

On motion of Brian Reynolds, the court appointed a receiver to sell the family home. The net proceeds from the sale were $532,483. Only Bradley and Brian Reynolds submitted secured creditor claims. Reynolds claimed $560,488 and Bradley claimed $1,556,387. The receiver paid various costs of the sale, none of which is at issue here. It also paid $25,000 to Leslie Reynolds pursuant to an agreement between the receiver, Brian Reynolds, and Leslie Reynolds. The value of the homestead exemption, $125,000, was distributed to Brian Reynolds in July 2019. The balance remaining to pay secured creditors in February 2020 was $359,147. The receiver determined that all $359,147 should go to Brian Reynolds.

The trial court approved the receiver's final accounting and disbursement to Brian Reynolds. Bradley filed a notice of cash supersedeas, and the funds were deposited in a trust account pending this appeal.

Bradley appeals.

DISCUSSION

Bradley assigns three errors. First, he argues that his judgments are senior to Brian Reynolds's lien and should be paid first. Second, he argues that his liens are senior to Brian Reynolds's interest in a certain portion of the proceeds from the sale of the home which he claims are Leslie Reynolds's separate property. Last, he claims the receiver improperly calculated the payment due to Brian Reynolds.

In a dissolution proceeding, the court has "practically unlimited power" over property when exercised with reference to the rights of the parties and their children. Arneson v. Arneson, 38 Wn.2d 99, 102, 227 P.2d 1016 (1951). The dissolution court has authority to make disposition of the property and liabilities of the parties, whether community or separate. RCW 26.09.080. Where it appears that partition of property cannot be made equally, the court may equalize an unequal distribution of property by ordering a money award to one party through the "'time-honored doctrine of owelty.'" In re Sale of the Real Prop. of Hartley, 54 Wn. App. 434, 438, 774 P.2d 40 (1989) (quoting Von Herberg v. Von Herberg, 6 Wn.2d 100,121, 106 P.2d 737 (1940)); RCW 7.52.440. Owelty may take the form of a one-time payment, or may become a lien on property awarded to the other spouse. Id.

Here, the dissolution decree awarded Leslie Reynolds, as separate property, the family home, subject to a lien to Brian Reynolds of $342,115 bearing a six percent interest rate per year. The lien is an owelty lien. It was awarded to Brian Reynolds as his separateproperty. As such, it is not subject to Bradley's judgment.² The judgment which Bradley seeks to enforce was entered against only Leslie Reynolds on June 24, 2008. It was not entered against Brian Reynolds. The parties had been living separate and apart since April 22, 2007. The marital community was defunct. Leslie had no authority to act on the behalf of the marital community to encumber community real property. RCW 26.16.030(3). The marital residential property was community property. The judgment is therefore a separate liability of Leslie. The trial court in the dissolution properly characterized it as a separate liability.

This is similar to the property division in Marriage of Wintermute, 70 Wn. App. 741, 744-45, 855 P.2d 1186 (1993). The court characterized the division in this manner:

The decree of dissolution attempted to distribute the marital property equitably, yet preserve the family home for Florence and the children during their minority. Thus, the trial court awarded the home to Florence and a compensating sum of $12,000 to Leslie. This kind of equalization derives from the ancient doctrine of owelty, Hartley v. Liberty Park Assocs., 54 Wn. App. 434, 437, 774 P.2d 40(1989), and is authorized by statute, RCW 7.52.440. A judgment for owelty creates an equitable lien on the property in the nature of a vendor's lien. Adams v. Rowe, 39 Wn.2d 446, 236 P.2d 355 (1951); Hartley, supra.

A vendor's lien affords the seller of real property a means of securing the unpaid portion of the purchase price. BLACK'S LAW DICTIONARY 1555 (6th rev. ed. 1990). When, as in this case, a particular piece of real property cannot be fairly apportioned, an equalizing monetary award can be made in lieu of partition. SeeAdams, 39 Wn.2d at 447[]; Von Herberg[, at] 121[]; Hartley, 54 Wn. App. at 438[]. An owelty lien to secure the debt may be created by agreement of the parties, or it may be decreed by the court as an equitable alternative to partition. 4 G. Thompson, Real Property, § 1827 (1979); Von Herberg, 6 Wn.2d at 121[]. The owelty lien is like a vendor'slien in that it attaches to a particular piece of real property to assure payment of a debt related to that property.

An owelty lien commences from the entry of judgment. Hartley, at 437[(]citing RCW 4.56.200[).]

Id.³,⁴,⁵ (footnotes omitted). By attaching to a particular piece of real property to secure an equalizing award of money, an owelty lien is significantly more focused and limited in scope than a general judgment lien. See id. at 744-46.

Leslie's separate interest in the former community residence is an after-acquired property interest for purposes of RCW 4.56.190. Bradley's claim is a general statutory lien claim based on a money judgment. As such, Bradley's lien attaches only to her non-exempt property, not her homestead exemption. Bradley argues his lien is first in time and first in right, because he recorded his judgment before Brian recorded his, and it attached the instant Leslie received the separate property interest. But, this argument is erroneous.

The decree of dissolution transformed community property interests into separate property interests as part of the partition of the assets of the marital community. See In re the Marriage of Little, 96 Wn.2d 183, 190, 634 P.2d 498 (1981). The owelty lien awarded to Brian attached to the real property. Leslie was awarded a separate property interest already encumbered by the owelty lien. Bradley's judgment lien could attach to only that already-encumbered separate property interest. The owelty lien attachedspecifically to Leslie's real property and was perfected when the decree was filed and entered on the execution docket. RCW 4.56.200(2); CR 58(b).⁶ It was unnecessary to record the decree with the county auditor to perfect the lien or establish its priority as to that specific property. RCW 4.56.200; See also Sablefish, 111 Wn.2d at 227. Therefore, the owelty lien is first in time and first in right with respect to Leslie's interest in the former family residence. And, because an owelty lien is in the nature of a vendor's lien, it must prevail against Leslie's declaration of homestead as well as the non-exempt portion of her property. Adams, 39 Wn.2d at 449; RCW 6.13.080.

Bradley argues RCW 6.13.090 requires a different result: "'A judgment against the owner of a homestead shall become a lien on the value of the homestead property in excess of the homestead exemption from the time the judgment creditor records the judgment with the recording officer of the county where the property is located.'" The statute addresses the effect of recording a statutory money judgment. Id. It attaches to real property only by virtue of recording. Id. It does not attach to the exempt portion of the homestead property. It attaches only to the...