Changing Positions During a Divorce Trial
In Arizona, property acquired during a marriage is presumed to be community property. During a divorce, the judge divides a couple’s community property equitably between them. However, it is not always easy for the court to determine the value of community property.
In Moser v. Moser 474 P.2d 869 (1970), the Court of Appeals addressed the valuation of an insurance policy. The wife, in this case, appealed the trial court’s ruling that certain life insurance policies were her husband’s separate property.
Facts of the Case
Mr. Moser and Mrs. Moser divorced. Among their assets were life insurance policies on husband’s life. Mr. Moser purchased them in New York where the couple initially lived. He took them in his name only. He then borrowed $8,000 against the policies and the couple used this community property to make payments and pay premiums.
Later, Mr. Moser and Mrs. Moser moved to Arizona. They borrowed more money on the insurance policies that they used for living expenses. In 1966 and 1967, Mr. Moser transferred ownership of the policies to wife for estate tax purposes. He did not file a gift tax return.
The couple proceeded to borrow more money on the policies that they used for community expenses. At trial, Mr. Moser claimed that the policies were community property. Wife also testified that she thought they were community property. The trial court said that the policies, acquired in New York, appeared to have been husband’s separate property. At that point, husband began arguing that they were his separate property.
The trial court ruled that the policies were husband’s separate property. It found no evidence that he intended to give an interest to Mrs. Moser. It further found that the net community interest in the policies was $1,811.85. This was the net amount their cash surrender value increased while the couple lived in Arizona.
It awarded this amount to wife. From this, Mrs. Moser appealed.
Transfer to Wife Not Conclusive
Mrs. Moser now argues that the policies are her separate property. She claims that the fact that Mr. Moser transferred ownership to her is conclusive. The Court of Appeals disagreed. It said that, in Arizona, the title to a life insurance policy does not prove ownership. Evidence of the title transfer does not prove whether Mr. Moser intended a gift to wife.
The Court found the evidence showed that both the husband and wife did not intend the wife to be the sole owner.
Wife’s Community Property Share
The Court of Appeals, however, agreed that the policies were community property. Husband argued at trial that they were community property. The Court said that once he took this position at trial, he could not change it on appeal. The cash surrender value of the policies at trial was $11,500, after payment of the outstanding loan.
Mrs. Moser argued that the Court should value the policies without subtracting the $8,000 loan. For this she relied on the case Hofstra v. Hofstra, 474 P.2d 869 (1970). In Hofstra, the husband borrowed money ($125,000) to purchase a community property ranch. He secured the loan with a pledge of his separate property. The court valued the ranch at $240,000. The husband asked for either a 125/240th interest in the ranch or a $125,000 lien against it.
The Court disagreed since the husband didn’t say that he reserved the cash investment as separate property until trial. At that point, the Court ruled, it was too late to do so. The Court of Appeals found in the Moser’s case that husband and wife’s situation differed factually from Hofstra. It said that Mr. Moser bought separate property subject to a loan. The property was then transmuted into community property. It ruled that, in these circumstances, the community takes the property subject to the debt.
The value of the community interest is its fair market value less the amount of the debt. The Court of Appeals awarded Elizabeth a 50% interest in the policies, or $5,750.
The Arizona Court of Appeals amended the lower court ruling to award Elizabeth $5,750 instead of $1,811.85. It upheld the court’s decision otherwise. This included the lower court ruling on stock valuation and its attorney fee award to Elizabeth. This appeal distinguished a prior ruling from the Arizona Court of Appeals in the case of Hofstra v. Hofstra.