Property and Debts

Question 1

How is CP earned/acquired during marriage, but received after date of service?

Answer 1

Property earned through a spouse’s labor during a marriage is community property, even if the property is not received until after the community terminates.
ex: pension plans if form of deferred comp. and CP portion divisible (Koelsch v. Koelsch); vacation and sick pay if earned during marriage and you can cash out; severance pay if based on earnings/time during marriage.

Question 2

How are disability payments treated in divorce?

Answer 2

post community disability benefit payments are separate, even where community bought and paid for the policy. Payments prior to DOS are CP (substitute income) (Helland v. Helland)

Question 3

What is a Bobrow claim?

Answer 3

The gift presumption does not apply post service to voluntary payments for community obligations after petition for dissolution is filed. Rationale - separate assets of one party should not be penalized for maintaining CP when an agreement cannot be reached. Paying party is entitled to reimbursement.

Question 4

What is the burden in Bobrow claims and who has it?

Answer 4

Payor has burden to prove payments made. Preponderance of the evidence is the standard

Question 5

What is the general rule re property division and ARS 25-318(a)? As contemplated in Toth?

Answer 5

CP must be divided “equitably, though not necessarily n kind, without regard to marital misconduct” unless there is a sound reason to do otherwise, based on the record in the case. Toth v. Toth.

Question 6

What is the rule gleaned from Toth v. Toth?

Answer 6

TC not bound by any per se rule of equality, but rather has discretion to decide what is equitable in each case. There may be a good reason to deviate from an equal division, which is the most common result.

Question 7

When can a TC do an unequal property division?

Answer 7

The court has wide discretion to apportion CP under 25-318 (In re marriage of Berger). Additionally, the Court can consider excessive or abnormal expenditures to reach an equitable division of CP. (Martin v. Martin)

Question 8

Must a TC value an asset close to the DOS?

Answer 8

No. The court has wide discretion to choose a valuation date for community assets, such as a shared business. Sample v. Sample

Question 9

What are the two considerations gleaned from Sample v. Sample when selecting a business valuation date? (hint-Meister)

Answer 9

1. the court’s choice of a valuation date should be dictated by pragmatic considerations, and
2. the decision must comport with principles of fairness and equity.

Question 10

What is the presumption for the date to value a community asset such as a business?

Answer 10

None. See Sample v. Sample and Meister. Arizona does not follow the many other states that do have a rule the valuation date must be DOS

Question 11

How does foreseeability factor into considering when selecting a valuation date?

Answer 11

None in a divorce setting. may be plenty in a business setting, but not in divorce.

Question 12

Where is the waste claim found in ARS and what does it say?

Answer 12

318(C) - permits the courts to consider “excessive or abnormal expenditures, destruction, concealment or fraudulent disposition of community, joint tenancy and other property held in common”.

Question 13

Who has the burden of proof in a waste claim?

Answer 13

The spouse alleging abnormal or excessive expenditures had the burden to make a prima facie showing of waste. Thereafter, the burden shifts to the spending spouse because all of the evidence is generally within that spouse’s knowledge, possession or control.

Question 14

Can a TC delay dividing community property for some sound reason when entering a divorce decree?

Answer 14

No. A TC must “shall” “if considered, approved, made provisions for disposition of property”. 25-312(4)

TC must assign S & S and “shall” divide CP, JT and other property held in common.

Question 15

What is a Brown Decree? Does it void a marriage?

Answer 15

In AZ they are improper bifurcations of divorce, but fixable upon appeal, so do not void the dissolution. The rule is property allocation issues must be resolved concurrent with dissolution of marriage.

Question 16

Give general description of expert witness

Answer 16

An expert is a witness who has specialized knowledge which will assist the trier of fact to understand the evidence or to determine a fact in issue. Their testimony is generally admissible so long as the witness has the requisite knowledge and expertise - the court is free however to give the opinion the weight it deserves (in other words, think Judge Blair and his denial of expert testimony found to be improper)

Question 17

Must an expert account for all possible methods of assessment?

Answer 17

No.

Question 18

Can a witness subpoenaed by one party and present in the courtroom refuse to testify?

Answer 18

No. presence is all that is required. irrelevant who subpoenaed the witness. Judge should permit the calling of that expert.

Question 19

What is the strong presumption of property acquired during the marriage pursuant to 25-211?

Answer 19

All property acquired by either party during the marriage is the CP of the parties.

Question 20

What is the burden of proof in rebutting the presumption of CP when establishing property acquired during the marriage as sole and separate property?

Answer 20

To rebut the presumption the spouse asserting the S & S property claim has the burden to prove “by clear and convincing evidence” that the property acquired during the marriage was by gift, bequest, devise or acquired with S & S funds/property.

Question 21

Describe the concept of tracing.

Answer 21

When a claim is made that property purchased during the marriage is S & S property of one spouse, the fund with which such property was acquired must be clearly shown to have been the separate property of such spouse.

Question 22

Can you transform separate property by maintaining or enhancing with community funds?

Answer 22

No. Separate property retains it separate property nature even if the community contributes funds and uses the residence as a family home (Drahos v. Rens)

Question 23

What doe capital contributions made from CP do to separate property?

Answer 23

Arizona law has long recognized that capital contributions made with community funds create a community interest in the separate asset - called a community lien.

Question 24

define community lien in real property context

Answer 24

the amount of the lien reflects both the amount of CP funds expended plus the increase or decrease in value attributable to the community contributions during marriage.

Question 25

What does a signed disclaimer deed do regarding the presumption of community property?

Answer 25

A disclaimer deed historically rebutted the presumption of community property because of Bender v. Bender, however, there is a current split of authority in Division 1 (Saba/Femiano).

Question 26

what is a disclaimer deed?

Answer 26

A disclaimer deed renounces ownership in a property. Per Bell-Killbourn, it effectively rebuts the presumption of community property.

Question 27

How can you effectively overcome a disclaimer deed?

Answer 27

With clear and convincing evidence showing the deed was procured by fraud or mistake.

Question 28

What is a postnuptial agreement?

Answer 28

A postnuptial agreement is an agreement entered into during the marriage between spouses to define each spouse’s property rights in the event of death or divorce.

Question 29

How do you challenge a post-nuptial agreement (in re Harber Estate rule)?

Answer 29

Spouses are free to contract for changes to their property rights but, the agreement must be free from any taint of fraud, coercion or undue influence. The party seeking to enforce the agreement must prove by clear and convincing evidence that the agreement was -as to the challenging party - not fraudulent or coerced, or that it was not unfair or inequitable, and that the challenger acted with full knowledge of the property involved. Arizona law does not require that a post nup be entered into in contemplation of death or divorce

Question 30

For a post nuptial agreement, what time period can be looked at when determining whether “unfair or inequitable”

Answer 30

at any time - date of divorce or agreement - this is a more onerous standard (to overcome-set aside the agreement) than prenups because those only look at the time of signing.

Question 31

Explain the outcome in Austin

Answer 31

H wanted to enforce the LLC operating agreement’s arbitration clause. Broader issue is whether that agreement would also and eventually be treated as evidence of gifts of Wife’s property to community. W (Manhattan socialite) wanted the agreement to be treated as post nuptials to be viewed with heightened standards applied to post-nups. W won because the LLC did more than just manage the property, it imposed “permanent and significant limitations” on wife’s property rights (including assigning all control over to H) and arguably transformed her S & S property rights into CP. So the LLC operating agreement was an invalid post nuptial.

Question 32

Is a disclaimer deed a post nuptial agreement?

Answer 32

No. AZ courts do not view them as post nups because they are unilateral and simply renounce ownership. In the test you should apply the post nuptial analysis but reject it for points. Argue that a postnuptial agreement requires both spouses’ involvement and define each spouse’s property rights in the event of death or divorce.

Question 33

What is the Drahos/Barnett formula?

Answer 33

When CP are used to enhance S & S property, the community is entitled to a lien (Drahos). When the property increases in value during the marriage, a modified Drahos formula is used to compensate the community for its share in the appreciation (Barnett).
C=(C/B x A). C = total of any CP contributions (capital); B is the purchase price (or value at marriage) and A is the appreciation

Question 34

What happens to S & S property when commingled in a fund?

Answer 34

the entire fund is presumptively CP unless the S & S property, or a portion thereof, can be traced.

Question 35

Who has the burden in a tracing issue?

Answer 35

The burden is on the person claiming S & S to trace by “clear and convincing evidence” those funds that can be excluded from CP.

Question 36

When neither party requested findings of fact, is the TC required to make them when fraud is alleged.

Answer 36

No.

Question 37

What is the principal from Van Loan?

Answer 37

Any property earned through community effort is divisible in a dissolution of marriage.

Question 38

If K was entered into before marriage -does that control the character of the property as S & S?

Answer 38

No. Performance under the contract that occurred during the marriage is CP - think employment contract.

Question 39

If payout from K was after petition for dissolution filed, does that control the character of property as S & S?

Answer 39

No. if earned during the marriage, then CP.

Question 40

What is the Court’s authority when determining what is “equitable” in a property distribution according to Flower v. Flower?

Answer 40

Broad discretion in the specific allocation of individual assets and liabilities.

Question 41

Does a party’s ability to pay a debt bear upon an equitable division of that debt?

Answer 41

Yes. one party can be awarded all debts when the overall distribution of all the assets is otherwise equitable in that situation. (Carter v Carter)

Question 42

What is the general rule for division, notwithstanding Toth?

Answer 42

An equitable distribution of property need not be exactly equal, but must result in substantial equality.

Question 43

What is the general rule when separate property is converted to jointly-owned property during the marriage?

Answer 43

A gift to the community is presumed. Battiste v. Battiste

Question 44

When separate property is presumed to be a gift to the community who bears the burden to overcome that presumption, and what is the standard?

Answer 44

The party seeking to retain the S & S nature of the property must prove by clear and convincing evidence it was not a gift.

Question 45

When sole and separate property is transmuted via a post nuptial agreement and one party claims the agreement is unfair, who bears the burden in that context?

Answer 45

Once a challenger claims unfair, the burden shifts to the party seeking to enforce the post nup by “clear and convincing evidence” to establish that the agreement was not procured by fraud or coercion, or that it was not unfair or inequitable.

Question 46

Where an LLC and operating agreement give both parties management and control, and where the S & S property of one spouse was placed into that LLC, what is the analysis and likely outcome?

Answer 46

Apply post nup but then reject it - the LLC had a different purpose than the one in Austin. The purpose may be for buying and selling real estate or some purpose other than “to define each spouse’s property rights in the event of death or divorce.” If rejected as post nup, then the standard presumption of gift to community applies.

Question 47

If H was awarded punitive and compensatory damages in a PI settlement, and H and W thereafter both sign a structured settlement agreement, awarding H all payments in life and W upon death, is this a post-nup? Is it valid? Why?

Answer 47

Yes, it was an agreement entered into during the marriage defining each spouse’s property rights in the event of death or divorce. Likely valid.

Question 48

Are compensatory damages from PI settlement CP or S & S if awarded during marriage or if the injury occurred during the marriage?

Answer 48

Sole and separate as they have a lucrative title.

Question 49

What portion of damages from PI settlements would be characterized as CP?

Answer 49

So far, courts have declared reimbursement type damages (economic or special, i.e .lost earnings) only as CP. Jurek. Hefner. No court has ruled on punitive, but apply lucrative vs. onerous title principals if faced with this question.

Question 50

When is the character/status of property established?

Answer 50

Upon acquisition. Bender v. Bender.

Question 51

Explain Rueschemberg. What is it, what does it say? Who bears the burden?

Answer 51

TC must equitably apportion the increase in value (whether goodwill or otherwise) of the separate business if the efforts of the community caused a portion of that increase and substantial justice requires it. The burden is on the spouse claiming the increase.

Question 52

If a marriage is annulled, how is the property divided?

Answer 52

Parties acquire community property and debt even during a marriage that results in an annulment. When terminating the marriage, however it is terminated, the court must still dispose of assets and debts pursuant to ARS 25-318. Multiple statutes provide this authority, including the management and control statute, community property statute, separate property statute all mention both PFD, LS and Annulment. They do not distinguish (Hammett v Hammett)

Question 53

If you have a loan/lien against a residence, it could be construction loan or it could be a home improvement loan. What is the difference and why?

Answer 53

Arizona has “anti-deficiency” statutes prohibiting a construction loan from being reduced to a money judgment. If categorized as a home improvement loan however, it would be collectible.

Rule: In AZ, protection for residential borrowers is set forth in two anti-deficiency statutes. But it must be categorized as a construction loan, not a home improvement loan. These laws are meant to protect consumers and place the burden on lenders from “over-valuing” real property.

Question 54

Anti Deficiency statute - what are the five factors to determine if construction loan?

Answer 54

1. Building or remodel but structure is largely demolished
2. The intent of the parties when executing the documents
3. Whether the structure was inhabitable or inhabited during construction
4. Whether structure was just improved or substantially expanded
5. Whether the project is characterized as home improvement or construction in the loan documents.

Question 55

If a debt is obtained during the marriage, what is the presumption?

Answer 55

All liability incurred by either spouse during a marriage is presumed to be a community obligation. In re Marriage of Flower. This includes debt secured by separate property.

Question 56

What is a waste claim?

Answer 56

(ARS 25-318(c))- When determining the equitable division of property in a dissolution proceeding, the trial court may consider and account for any excessive or abnormal expenditures, destruction, concealment, or fraudulent disposition of that property.

Question 57

Can a TC allocate 100% of a debt to one party? (Winter case)

Answer 57

1. In the Van Hair v. Evans case, the fact that H controlled the community businesses, diverted customers to his son’s similar business (e-cigarettes) and failed to file tax returns since 2011 the court did not abuse its discretion in awarding all debts solely to Husband.
2. Allocating debt to one party - Tax Liability – in determining the equitable distribution of community property, the trial court can within its discretion properly allocate payment of the liabilities to one or both parties. Spector v. Spector (1972)

Question 58

Can a TC allocate 100% of a debt merely because one party cannot pay as well as the other?

Answer 58

Yes, TC has discretion to allocate all of a debt to one party, where the division of all assets, taken as a whole, remain “substantially equitable between the parties” It helps if the other spouse has some unusual hardships, such as terminal illness. . .

Question 59

What’s the analysis under Bobrow for “Vacation Pay” or “Sick Pay”?

Answer 59

If vacation pay/sick pay is an alternative form of wages (i.e. you must use for vacation and cannot bank and get cashed out for) then is it sole and separate property because it is “speculative” whether the employee will ever receive it.

So the questions is “is the vacation pay an alternative form of wages or, a form of deferred compensation for services performed?” The former is SP, the latter is CP. Example would be the cashing out of sick pay or vacation pay when retiring.

Question 60

When both parties admit something in a pleading or, when a party admits a fact and the other party seeks to enforce/apply that fact to be true, is a TC bound by said admission?

Answer 60

Generally yes. if both parties admit to a fact, then the TC may commit abuse of discretion in failing to make the finding. In Andrews v. Andrews, the parties worked for American Airlines. Wife admitted H continued to make payments on community obligations. H did not admit evidence. Court denied all Bobrow claims. COA reversed and said to the extent W admitted certain facts, TC should award a Bobrow claim at least as to those.

Question 61

Is the TC bound to divide a business asset (or any asset) as of the date of service?

Answer 61

No.

Question 62

What is the holding in Meister v. Meister regarding business valuations and date of valuation

Answer 62

Facts; H and W married 2002, separated 2016, W filed Jan. 2017. W stopped working at community business June 2017. During marriage and throughout pre-filing separation, H overbilled major client. Four months after filing (April 2017), major client fired Community Business and refused to pay outstanding A/R (nearly 1M). Kotzin valued business at $2,646,000 at March 2017, the closest quarter to the DOS. Hughes valued at $1,120,000 as of December 2017, when full consequences of the loss of the big client and A/R were realized. Hughes later on valued business at 120K at end of 2018. Trial in March 2019.

Holding - Since the conduct occurred during the marriage, and foreseeability is not a relevant factor of consideration in a divorce context because of the overriding principal of fairness and equity, the TC committed abuse of discretion in selecting the date of service date. Hughes date was when the “full consequences of the loss” were realized. This is appropriate under the circumstances.

Question 63

Gleaned from Meister v. Meister, how does a Waste claim factor into the valuation?

Answer 63

The TC has broad discretion to select a valuation date by taking into consideration waste claims if said waste reduced the value of the business. If not, then an offset for waste claim against other marital assets is appropriate. In Meister, the TC conflated the waste claim and Husband’s bad conduct before the date of service, so COA was unable to determine the extent the waste claim impacted the selection of the DOS for valuation, and the court needed to do that.

Question 64

Are findings of fact required for the date of valuation used by the TC where no FOF is filed by a party?

Answer 64

Yes. The court must still articulate enough facts when selecting a valuation date for the COA to determine whether equity and fairness (in Sample) is met.

Question 65

Can a calculation of value be offered into evidence even when it says on the report that it cannot?

Answer 65

Yes. TC should not exclude the expert or the report. TC must admit evidence if otherwise admissible and “give it the weight it deserves”.

Question 66

Is TC bound by party’s admission as to value of business where the other party failed to prove anything?

Answer 66

Yes. In Larchik v. Pollack, H and W married October 2016. 10 months later, W files for divorce. Prior to marriage, W was a real estate agent. After marriage, W formed an LLC for Real Estate purchase of an office building. W took out a loan (H not on the loan) and paid the balance with S & S money. W did not provide proof of source of funds.
Judge excluded Bays “calculation of value” merely because Bays said it wasn’t intended for court. That is a judge’s determination, not a witness determination.

Court remanded for judge to consider the calculation of value and Bays’ testimony, and reversed Atty fee award too. COA also remanded because W failed to prove source of funds for the money used as DP on office building.

Wife’s business valuation stated increase was 93K. Wife put that in her pretrial statement. COA said the mere fact that W put that in her PTS was an admission by party opponent and the court should have awarded H at a minimum, ½ of W’s stated value.

Also, merely because the community guaranteed the loan for the office building, that did not convert the office building into a community asset where there was no default on the loan and that is the “only tie” to the asset.

Question 67

What is the Femiano and Saba Division 1 Conflict?

Answer 67

Saba and Femiano have same facts – parties married first, then acquired property, with one spouse acquiring the property in their name only because the other party had bad credit, the non-acquiring party signed a disclaimer deed. In Femiano, the court chucked Drahos out the window and said 50/50. In Saba, the court applied Drahos.

In Saba, the Court stated that “awarding the community full appreciation ignores the reality of what the disclaimer deed represents. But for that disclaimer, Husband would be entitled to an equal interest in the full value. An award under Femiano would ignore the fact that Wife remains solely liable for the outstanding loan balance. If the community were to receive 100% of the appreciation, then H would be rewarded with 50% of the property’s upside with none of the risk on the downside. The result is inequitable and unreasonable.” I call bullshit.

Femiano Holding – if the community pays all costs associated with purchasing and improving a separate property residence acquired during marriage – with no separate capital contributions – and the property appreciates in value, any increase in equity is fully attributable to community contributions, and the community is thus entitled to an equitable lien for the full increase in equity.

The SC denied review of Femiano, but granted review of Saba. That ruling is pending.

Question 68

How is a disclaimer deed applied in a real property asset division issue?

Answer 68

absent fraud or mistake, the disclaimer deed must be enforced.

Question 69

If H signs an employment K just prior to marriage, but is fired during marriage, does he have to share severance if received after DOS? What about if he negotiated it after DOS?

Answer 69

When community labor is expended in the acquisition of a future severance package, the community is entitled to a share of the severance, even if the severance was negotiated and paid after a petition for dissolution is filed.

Question 70

If during trial only the gross amount of a severance was admitted, and the court’s equalization payment was for a set sum representing 1/2 of gross amount, can payor go back and fix with evidence of net amount?

Answer 70

No. Too bad so sad. Be prepared for trial. Bowser v. Nguyen

Question 71

Does the Revocation upon Divorce statute mean any and all divorces revoke disposition made to former spouse or to relative of former spouse?

Answer 71

Not in every case. If there is “affinity” relations, meaning the two are related by “affinity” in that they maintain a positive relationship/bond. If yes, then that person can still inherit.

Question 72

Can the TC take into account the earning capacity of each person when allocating debt or must the TC equally divide the debt?

Answer 72

The Court does not have to divide the debt equally. In addition, the court can take into account the parties’ earning ability in deciding allocation of debt. (Silva v. Silva)

Remember these principals:

The superior court has broad discretion in apportioning community property and debt between parties at dissolution, and we will not disturb its allocation absent an abuse of discretion. Boncoskey v. Boncoskey (2007).

We presume that debts incurred during marriage are community obligations unless the party seeking to overcome this presumption provides clear and convincing evidence to the contrary. In re Marriage of Flower (2010).

Under ARS 25-318, community property is to be divided “equitably” absent a sound reason otherwise appearing in the record. Toth v. Toth (1997).

“Equitable” s a concept of fairness dependent upon the facts of particular cases. Toth v Toth (1997).

Question 73

What effect does BK have on HELOC where parties wait 6 years (SOL for debt) before suing for quiet title?

Answer 73

Where the parties secured the loan with their home, and where BK extinguishes many remedies the lender has, such as an acceleration clause, the lender can still enforce the secured deed because that survives BK.

Question 74

When a party has PI awards which are not broken down, which party bears the burden to establish which part of that award is reimbursement as opposed to compensatory?

Answer 74

The party who wants 1/2 needs to prove, even thought the evidence most logically lies with the injured spouse. . .

Question 75

Can a Court order the parties to jointly hold real property as tenants in common in the best interests of the minor children?

Answer 75

Nope. 25-318(A) is a clear mandate that community property must be divided on dissolution of the marriage (“shall also divide the community, joint tenancy and other property held in common”). No statute allows the TC to deprive either party of the right to control and dispose of their separate property based on the BIC.

The sole exception is 25-318.02 – “Convicted spouse” if in prison for 80 plus years, including life with or without parole, the court “shall not award any community property to a convicted spouse.”

Question 76

Is it a gift? What is the analysis?

Answer 76

Is there a donative intent
was there delivery
is it irrevocable

Question 77

Name some discounts in business valuations

Answer 77

lack of marketability
minority control
age of person running business

Question 78

Can a gift ever be taken back in family law context?

Answer 78

Yes, in the context of marriage, gifts of jointly held property do not constitute irrevocable inter vivos transfers, instead they are made in contemplation of a permanent relationship, but if cut short, fully subject to equitable divestment under the statute.

Question 79

What is the rule in Imboden?

Answer 79

When making an equitable division of community property upon dissolution of a marriage, the family court should consider all factors that bear on the equities of the division, including the length of the marriage, the contributions of each spouse to the community, financial or otherwise, the source of funds used to acquire the property to be divided, the allocation of debt, as well as any other factor that may affect the outcome.