Filed 4/18/18; Certified for Publication 5/17/18 (order attached)




               IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   FOURTH APPELLATE DISTRICT

                                              DIVISION THREE


 In re Marriage of LINDA M. and BRYAN
 S. MARSHALL.

 LINDA M. MARSHALL,
                                                                    G053897
      Appellant,
                                                                    (Super. Ct. No. 11D006621)
          v.
                                                                    OPINION
 BRYAN S. MARSHALL,

      Respondent.



                  Appeal from a judgment of the Superior Court of Orange County, Richard
D. Vogl, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed.
                  Burch, Coulston & Shepard and Todd P. Coulston for Appellant.
                  Law Offices of Saylin & Swisher, Brian G. Saylin, Lindsey L. Swisher and
Parris Trimble, for Respondent.
              Linda Marshall appeals from the judgment on reserved issues following the
                                                    1
dissolution of her marriage to Bryan S. Marshall. Linda challenges two specific aspects
of the family court’s division of marital property. She contends the court erred declaring
a 2006 capital gains tax liability to be a community debt, notwithstanding the fact she had
obtained an “innocent spouse” determination from the Internal Revenue Service (IRS).
Linda also contends the court erred in awarding Bryan the post-separation proceeds of a
disability insurance policy as his separate property, despite the fact the policy had been
purchased with community funds and was purportedly intended to serve as retirement
income.
              The court did not err. Thus, we affirm the judgment. As Linda
acknowledges, the court was not bound by the IRS’s innocent spouse determination in
characterizing the tax liability, and we conclude its decision to treat the liability as a
community debt, notwithstanding that determination, was supported by substantial
evidence. Similarly, the court’s conclusion that the disability insurance policy was
intended to replace Bryan’s earned income — rather than to operate as part of a
retirement plan — was amply supported by the evidence. Because that factor determines
whether the post-separation proceeds of the policy are treated as community property or
the separate property of the disabled spouse, the court did not err by awarding the
proceeds to Bryan.


                                            FACTS


              Bryan and Linda were married in 1984, and separated in July 2011. Linda
worked as a registered nurse until 1987, and thereafter worked full time at home, acting
as primary caregiver to the parties’ four children.
1
              Because the parties share the same last name, we refer to each by their first
name for the sake of clarity. No disrespect is intended.

                                               2
              Bryan worked as a dentist, and in 1989, the parties took out a loan to
refurbish Bryan’s dental office. As a condition of making the loan, the lender required
that Bryan take out both a disability insurance policy and a life insurance policy. Bryan
testified the disability policy was never intended to operate as a retirement policy.
Indeed, when Bryan took out the disability policy to satisfy the lender’s requirement, he
already had what he described as a “retirement policy.” The parties also contributed to
IRAs and 401(k) accounts.
              In 2002, Bryan became disabled as the result of a degenerative autoimmune
disease, and he sold his dental practice. As a consequence of his disability, Bryan began
receiving $10,000 per month in benefits under the disability policy.
              The parties also owned the office building in which Bryan’s dental practice
had been located. After the practice was sold, they retained ownership of the building for
a period, before finally selling it in 2006. The proceeds of the sale were invested in a
limited partnership known as Orange Tree Lane, which was formed “to buy land and
build an office condominium development.”
              However, according to Bryan, his original intention when selling the
building had been to use the sale proceeds to purchase another property in accordance
with Internal Revenue Code section 1031 — a “1031 exchange” — and thereby defer
capital gains taxes on those proceeds. Unfortunately, Bryan was “somewhat misled by
[his] accountant on how to do it,” and “[w]hen it came time to filing, . . . he didn’t file it
as a 1031.”
              It was not until 2009 that the parties filed any tax return at all for 2006.
And because of the 2006 sale of the office building, that belated return reflected capital
gains of $1,735,615. As a consequence, the IRS assessed federal capital gains taxes of
over $300,000 (including interest and penalties), and the California Franchise Tax Board
(FTB) assessed capital gains taxes of approximately $265,000 (also including interest and
penalties).

                                               3
              Linda testified at trial that she applied to both the IRS and the FTB for a
determination she qualified as an “innocent spouse” for purposes of the 2006 capital
                                                                   2
gains tax liabilities, and that the FTB granted her request in part. Bryan testified he was
aware Linda had applied for an innocent spouse determination, and he acknowledged
filing an opposition to her request in “the proceeding” — albeit without identifying
whether he filed his opposition in a proceeding before the IRS or the FTB.
              Linda filed a trial brief covering many of the issues disputed between the
parties, plus separate trial briefs addressing her claim that the 2006 tax liability should be
allocated solely to Brian, and her claim that the disability insurance benefits should be
treated as community property.
              In her brief addressing the tax liability, Linda argued that while the trial
court “isn’t bound by the determinations of the Internal Revenue Service and Franchise
Tax Board, the case law on the issue clearly provides that [Bryan] would have no
standing before either the Internal Revenue Service or the Franchise Tax Board if he were
to try to challenge their determination that [Linda] is an innocent spouse.” She argued
that because Bryan had “a full right to be heard and to contest the determinations,” those
decisions “should be considered . . . to be res judicata as to the allocation of the 2006 tax
debt.”




2
              Linda claims in her opening brief that the IRS also granted her request for
innocent spouse relief, in full, but she cites no evidence in our record to support that
assertion. Instead, she cites “Exhibit 7,” presumably a document admitted at trial but not
included in our record, along with her counsel’s argument. However, argument is not
evidence, and we cannot consider citations to evidence which is outside the appellate
record.
              Bryan does not directly challenge Linda’s characterization of the facts.
Instead, he merely acknowledges her assertion of innocent spouse status and explains
why the evidence as a whole is nonetheless sufficient to support the trial court’s decision
on the issue.

                                              4
              Following the trial, the court issued a 31-page statement of decision,
detailing the many rulings which comprised its judgment. With respect to the issue of the
disability insurance policy, the court pointed out the parties had originally purchased the
policy because it was required by a lender. It found their intention in doing so was to
replace Bryan’s earnings, rather than to provide for their retirement, and that intention
never changed. The court also noted “the parties had invested in other assets (income
producing realty) anticipating future retirement, had life insurance, and had IRA
accounts.” Based upon those findings, the court concluded the post-separation proceeds
of the disability policy were Bryan’s separate property.
              And with respect to the tax liability, the court characterized Linda’s
argument as one based on the assertion that “federal law, specifically section 6013(e) of
the Internal Revenue Code, preempts all state law efforts to impose liability for federal
income taxes on anyone designated an ‘innocent spouse.’” The court rejected the
argument, however, pointing to case law stating that the IRS does not treat applications
for “innocent spouse” designations as an adjudication of the rights between the spouses,
and does not treat the other spouse as a party to the proceeding. The court concluded the
“innocent spouse” determination would not be entitled to res judicata effect under
California law because there was no evidence it was made by a “court of competent
jurisdiction,” nor that Bryan took any “active role” in the proceeding — even though he
may have filed an “opposition” to Linda’s application.


                                      DISCUSSION


Standard of Review
              “A judgment or order of a lower court is presumed to be correct on appeal,
and all intendments and presumptions are indulged in favor of its correctness.” (In re
Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) Thus, “[i]t is appellant’s burden

                                             5
to affirmatively demonstrate error and where the evidence is in conflict, we will affirm
the trial court’s findings.” (Williams v. Russ (2008) 167 Cal.App.4th 1215, 1224.)
              “We review the trial court’s resolution of factual issues under the
substantial evidence test. [Citation.] Under that test, ‘“[t]he power of the appellate court
begins and ends with a determination as to whether there is any substantial evidence,
contradicted or uncontradicted,” to support the trial court’s findings.’ [Citation.] We
review the trial court’s conclusions of law under a de novo standard.” (Wilkinson v.
Wiederkehr (2002) 101 Cal.App.4th 822, 827.)
              In this case, Linda contends we should apply de novo review to her claims
because “both issues constitute mixed questions of law and fact where the questions of
law predominate.” We disagree.
              “Mixed questions are those in which the ‘“historical facts are admitted or
established, the rule of law is undisputed, and the issue is whether the facts satisfy the
[relevant] statutory [or constitutional] standard, or to put it another way, whether the rule
of law as applied to the established facts is or is not violated.”’” (People v. Cromer
(2001) 24 Cal.4th 889, 894.) In such cases, “[i]f the pertinent inquiry requires application
of experience with human affairs, the question is predominantly factual and its
determination is reviewed under the substantial-evidence test. If, by contrast, the inquiry
requires a critical consideration, in a factual context, of legal principles and their
underlying values, the question is predominantly legal and its determination is reviewed
independently.” (Crocker National Bank v. City & County of San Francisco (1989) 49
Cal.3d 881, 888.)
              In this case, however, the alleged errors Linda identifies are not the product
of the court’s application of established facts to undisputed law. Rather, Linda’s
arguments rest on a series of more specific assertions, which, by turns, challenge the
court’s legal rulings and factual findings. We review each under the applicable standard.



                                               6
The Tax Liability
              Linda first contends the court erred by failing to allocate the 2006 capital
gains tax liability in a manner consistent with the “innocent spouse” determination she
received from the IRS and FTB.
              Significantly, Linda acknowledges the court is not bound by the decisions
of the IRS or FTB in deciding how to allocate the tax liability. But then argues, in
essence, that the court nonetheless should have followed those decisions based on
equitable principles. Her argument is analytically flawed for several reasons.
              First, there is no discretion in the court’s application of res judicata. The
decision in a prior proceeding is either binding in the successive action, or it is not. The
issue presents a pure question of law, and our review is de novo. (City of Oakland v.
Oakland Police & Fire Retirement System (2014) 224 Cal.App.4th 210, 228 [“Whether
the doctrine of res judicata applies in a particular case is a question of law which we
review de novo.”].) So by conceding the prior proceeding is not binding, Linda leaves no
legal issue to be decided.
              Second, Linda’s argument that the innocent spouse proceeding should be
accorded binding effect is internally inconsistent. She alludes to factors that might be
                                                               3
considered in determining whether res judicata would apply, pointing out that (1) Bryan

3
                 “In its narrowest form, res judicata ‘“precludes parties or their privies from
relitigating a cause of action [finally resolved in a prior proceeding].”’ [Citations.] But
res judicata also includes a broader principle, commonly termed collateral estoppel, under
which an issue ‘“necessarily decided in [prior] litigation [may be] conclusively
determined as [against] the parties [thereto] or their privies . . . in a subsequent lawsuit
on a different cause of action.”’ [Citation.] [¶] Thus, res judicata does not merely bar
relitigation of identical claims or causes of action. Instead, in its collateral estoppel
aspect, the doctrine may also preclude a party to prior litigation from redisputing issues
therein decided against him, even when those issues bear on different claims raised in a
later case.” (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 828.) “[C]ollateral
estoppel will only apply if the party to be bound agreed expressly or impliedly to submit
an issue to prior adjudication [citation] and had a full and fair opportunity to litigate
[citation] . . . [citation].” (Ayala v. Dawson (2017) 13 Cal.App.5th 1319, 1327.)

                                              7
would have no standing to challenge such a ruling before the IRS or the FTB; and (2) he
had “a full right to be heard and to contest the determinations made by” both taxing
authorities.
               But when “[a] party lacks standing,” it means the party “does not have an
actual and substantial interest in, or would not be benefited or harmed by, the ultimate
outcome of an action.” (City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 59.)
Consequently, the determination that a party lacks standing will preclude the party from
litigating an issue. (Blumhorst v. Jewish Family Services of Los Angeles (2005) 126
Cal.App.4th 993, 1000 [“We will not address the merits of litigation when the plaintiff
lacks standing, because ‘“California courts have no power . . . to render advisory opinions
or give declaratory relief.”’”].) Thus, if Bryan had no standing to litigate Linda’s
“innocent spouse” claim before the IRS or FTB, he did not have a “full right to be heard
and to contest” it.
               Instead, as explained in In re Marriage of Hargrave (1995) 36 Cal.App.4th
1313, 1320 (Hargrave), an innocent spouse proceeding is not intended to adjudicate any
rights as between the spouses. “[T]he IRS’s only concern [in an innocent spouse
proceeding] is the identity of the spouse to whom it will look for payment of the
delinquent taxes in the first instance.” (Ibid.) Thus, “the IRS does not treat this as a
determination of the rights and duties between the spouses.” (Ibid., italics added.)
Indeed, “[t]he federal government has no interest in how the states allocate tax liability
between divorcing spouses, as long as they do not attempt to interfere with IRS collection
efforts.” (Id. at p. 1321.) And because the innocent spouse determination is not intended
to allocate a tax liability as between the spouses, it cannot be accorded preclusive effect
on that issue. (Ayala v. Dawson, supra, 13 Cal.App.5th at p. 1327.)




                                              8
               Hargrave also suggests the IRS determination of innocent spouse status is
not subject to any particular formality: “[T]he determination of innocent spouse status is
made at an administrative hearing or, as in this case, during the course of informal
negotiations. (Hargrave, supra, 36 Cal.App.4th at p. 1320, italics added.) A decision
reached in such a casual process does not comport with due process and thus does not
warrant preclusive effect. (See Ahmadi-Kashani v. Regents of University of California
(2008) 159 Cal.App.4th 449, 461, [holding a claim under California’s Fair Employment
and Housing Act not barred where internal grievance proceeding lacked sufficient
judicial character to justify application of res judicata].)
               Linda’s attempts to distinguish Hargrave are unpersuasive. First, she
points out that the potential preclusive effect of the innocent spouse determination was
not raised in Hargrave until after the marital dissolution judgment had already been
entered between the spouses, and thus it was untimely. The Hargrave court itself
acknowledged that point, noting, “The time to raise all issues relating to distribution of
marital debts, including the propriety of assigning one-half the federal tax burden to an
‘innocent spouse,’ was prior to entry of that judgment.” (Hargrave, supra, 36
Cal.App.4th at p. 1321.) But that acknowledgement came only after the Hargrave court
had already explained why the assertion failed on its merits. Thus, it did not affect the
applicability of that analysis to this case.
               Linda also suggests that because Hargrave addresses only an IRS
proceeding, it cannot be relied upon to support the court’s refusal to follow the FTB’s
determination of her innocent spouse status. However, the burden is on Linda, as
appellant, to establish that a different rule is applicable to a FTB ruling, and thus that the
trial court erred by applying the same analysis to both. She has made no effort to do that
                                           4
and has consequently waived the claim. (See Berger v. California Ins. Guarantee Assn.
4
              Linda does point out, in her appellate brief, that Family Code section 2628
states the court “may” revise the parties “joint California income tax liabilities . . . in a

                                               9
(2005) 128 Cal.App.4th 989, 1007 [argument waived when parties “fail to make a
coherent argument or cite any authority to support their contention”]; Dills v. Redwoods
Associates, Ltd. (1994) 28 Cal.App.4th 888, 890, fn. 1 [appellate court “will not develop
the appellants’ arguments for them”].)
              Linda also argues that the IRS procedures for determination of innocent
spouse status have changed since Hargrave — under current regulations, the non-
requesting spouse is entitled to notice and an opportunity to submit information
pertaining to a request for innocent spouse status — and thus she contends Bryan was
given “the requisite notice and opportunity to be heard that was not present in the
                 5
Hargrave case.” That may be true, but the bare opportunity to submit information
pertaining to an issue under consideration does not equate to being a party to the
proceeding in which the issue is decided. Nor does it expand the scope of issues to be
decided in that proceeding. Linda does not contend otherwise.
              For all of the foregoing reasons, the court did not err in failing to accord
binding effect to whatever innocent spouse determination Linda may have received from
the IRS or the FTB with respect to the parties’ 2006 capital gains tax liability.
              Alternatively, Linda argues the trial court should have allocated the capital
gains tax liability in a manner consistent with the innocent spouse determination “because
Bryan breached his fiduciary duties to Linda and the community in his management and
control of the commercial building sale and [his] subsequent failure to timely file the


proceeding for dissolution of marriage . . . .” However, the statute does not impose any
requirement that the court do so in any particular circumstances.
5
              The regulation Linda relies upon is 26 Code of Federal Regulations part
1.6015-6 (2002), which obligates the IRS to notify a “nonrequesting spouse” by mail of a
proceeding seeking a declaration of innocent spouse status, and to “provide the
nonrequesting spouse with an opportunity to submit any information that should be
considered in determining whether the requesting spouse should be granted relief from
joint and several liability.”

                                             10
parties’ 2006 joint income tax returns.” (Italics added.) But Linda cannot show error on
appeal unless she demonstrates there was insufficient evidence to support the court’s
explicit finding against her on the issue of Bryan’s alleged fiduciary breach. That burden
is a heavy one: “‘A party who challenges the sufficiency of the evidence to support a
particular finding must summarize the evidence on that point, favorable and unfavorable,
and show how and why it is insufficient. [Citation.]’ [Citation.] ‘[W]hen an appellant
urges the insufficiency of the evidence to support the findings it is his duty to set forth a
fair and adequate statement of the evidence which is claimed to be insufficient. He cannot
shift this burden onto respondent, nor is a reviewing court required to undertake an
independent examination of the record when appellant has shirked his responsibility in
this respect.’” (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 409.) Linda has
made no effort to satisfy that significant burden. Her argument that the tax liability
should have been allocated differently fails.


Characterization of Disability Insurance Benefits
              Linda also contends the court erred in ruling the proceeds of Bryan’s
disability insurance policy were his separate property. She first points to the general rule
that “Property . . . acquired during the marriage is community property [citation] unless it
is (1) traceable to a separate property source [citations], (2) acquired by gift or bequest
[citation], or (3) earned or accumulated while the spouses are living separate and apart.”
(In re Marriage of Valli (2014) 58 Cal.4th 1396, 1400.)
              But as Linda acknowledges, a more specific rule applies to the proceeds of
disability insurance policies because “[t]he purpose of term disability insurance . . . is to
replace lost earnings.” (In re Marriage of Elfmont (1995) 9 Cal.4th 1026, 1034.) Thus,
the character of those proceeds will usually follow the character of the disabled spouse’s
earnings: “If during the marriage an insured spouse becomes disabled, the benefits
received are community property because they replace community earnings. [Citation.]

                                                11
If the benefits continue after the spouses have separated, they are the separate property of
the insured spouse whose earnings they replace.” (Ibid.)
                Linda relies on a limited exception to that rule, applicable to cases in which
the nondisabled spouse can establish that “during the marriage the premiums were paid
out of community funds with the intent that the benefits provide retirement income.”
(In re Marriage of Elfmont, supra, 9 Cal.4th at p. 1034, italics added.) And Linda argues
the court erred by not applying that exception.
                We reject the argument. This issue is purely factual, and the court
explicitly rejected Linda’s contention that the disability policy had been purchased and
maintained with the intent to provide for the parties’ retirement. Instead, the court
affirmatively concluded “the disability policy was purchased with the intent to replace the
income stream of earnings for [Bryan], and the intent of the parties was not for a
‘retirement’ policy.”
                That factual finding was amply supported — not only by the evidence of
the circumstances under which the policy had been purchased, but also by Bryan’s direct
testimony on the point. We are consequently bound by it.
                Linda also argues that even if the disability benefits were properly
considered to be Bryan’s separate property earnings as of the time the parties separated,
they should nonetheless be treated as retirement funds once Bryan has reached the
“retirement portion of his life.” (See In re Marriage of Briltz (1983) 141 Cal.App.3d 17,
20 (Briltz).)
                Linda relies on In re Marriage of Samuels (1979) 96 Cal.App.3d 122
(Samuels) for the proposition that after Bryan reaches the minimum age of retirement,
“the predominant purpose of such payments shifts to retirement support rather than
disability compensation resulting from premature retirement [citation]; at that point the
true character of the disability benefits . . . [citation] effectively constitutes community
property . . . .”

                                              12
              However, in both Briltz and Samuels, the courts were faced with a situation
in which the husband had reached the age where he was entitled to receive both disability
benefits — his separate property — and pension benefits which were community
property. The courts were concerned that the husband should not be allowed to
manipulate or dissipate the wife’s interest in the community pension benefits by electing
to rely on his disability benefits in lieu of taking his retirement. Thus, it was held that
“where the employee spouse elects to receive disability benefits in lieu of a matured and
vested right to retirement benefits, only the excess over the retirement benefits constitutes
compensation for [disability] and is, thus, the employee spouse’s separate property. The
amount received in lieu of matured retirement benefits remains community property
subject to division upon the dissolution of marriage” (Briltz, supra, 141 Cal.App.3d at p.
20.)
              In this case, there is no community retirement benefit at issue. Instead,
because the trial court made an explicit finding that the parties’ purpose in obtaining the
disability insurance policy was solely to replace Bryan’s earnings in the case of a
                                                   6
disability, and not to operate as retirement funds, those disability proceeds belonged
entirely to Bryan. As such, his decision to “retire” at a given age, or to consider himself
not retired, had no effect on Linda’s community property rights. Consequently, both
Briltz and Samuels are inapposite.


6
               Linda implicitly challenges the sufficiency of the evidence to support the
finding that the parties made other provisions for their retirement. She argues that even
though Bryan had a profit sharing plan, and the parties both had “small IRA accounts,” at
the time they separated, those assets were all liquidated in the post-separation period —
“leaving them with no retirement income, retirement accounts, or pension plans as of the
time of Trial.” Her challenge is misplaced, however. The fact the parties made decisions
which dissipated their retirement assets in the period between their separation and the
trial does not alter the fact that they had made those provisions for retirement during their
marriage. Nor does it undermine the court’s conclusion that during their marriage, the
disability policy was not intended to serve that purpose.

                                              13
              Finally, Linda argues the court was obligated to recognize that at some
point a disabled spouse such as Bryan would have retired from active employment in the
absence of the disability, and thus any disability insurance benefits received after that
assumed retirement date would necessarily have been intended to operate as a retirement
asset, rather than as the replacement for his wages. The argument has some appeal, but
ultimately it conflicts with In re Marriage of Elfmont, supra, 9 Cal.4th 1026, and In re
Marriage of Saslow (1985) 40 Cal.3d 848 (Saslow), which affirm that “The primary
purpose of disability benefits is to compensate the disabled spouse for lost
earnings — earnings which would normally be separate property after dissolution.”
(Saslow, at p. 860.)
              And while Elfmont and Saslow do authorize an apportionment of such
benefits to the extent the court finds they were intended to provide a retirement benefit,
Saslow specifies that such a finding should be based on the “testimony of the spouses’
intent, both at the time the disability insurance was originally purchased and at the times
that decisions were made to continue the insurance in force rather than let it lapse.”
(Saslow, supra, 40 Cal.3d at p. 861.) It is only “[a]bsent evidence of actual intent, [that]
the court may ascertain a normal retirement age at which the disabled spouse would have
been most likely to retire had no disability occurred.” (Ibid.)
              Linda’s argument flips Saslow around, suggesting the court must infer an
intent to provide retirement benefits, based on an assumed retirement date, even if there
was direct testimony bearing on the parties intentions. Because we are bound by Saslow,
we reject the argument.
              For all of the foregoing reasons, the court did not err in its award of the
post-separation disability insurance proceeds to Bryan as his separate property.




                                             14
                                 DISPOSITION


          The judgment is affirmed. Bryan shall recover his costs on appeal.



                                            IKOLA, J.

WE CONCUR:



MOORE, ACTING P. J.



GOETHALS, J.




                                       15
Filed 5/17/18



                              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                       DIVISION THREE

 In re Marriage of LINDA M. and BRYAN
 S. MARSHALL.

 LINDA M. MARSHALL,
                                                         G053897
      Appellant,
                                                         (Super. Ct. No. 11D006621)
          v.
                                                         ORDER
 BRYAN S. MARSHALL,

      Respondent.


                  The Association of Certified Family Law Specialists has requested that our
opinion filed on April 18, 2018, be certified for publication. It appears that our opinion
meets the standards set forth in California Rules of Court, rule 8.1105(c). The request is
GRANTED.
                  The opinion is ordered published in the Official Reports.



                                                    IKOLA, J.

WE CONCUR:


MOORE, ACTING P. J.


GOETHALS, J.
