Disclaimer Deed and Divorce | Waiving Community Property in a Home
The Scottsdale family law attorneys at Hildebrand Law, PC want to provide you with information regarding the restrictions on selling a home during an Arizona divorce. The Arizona Court of Appeals issued a seminal decision regarding the effect of signing a Disclaimer Deed signed in Arizona on a home purchased during an Arizona marriage in the case of Bell-Kilbourne v. Bell-Kilbourne.
The evidence at Trial established that the parties were married on February 15, 2000. The parties, thereafter, decided to purchase a home and chose to apply for a loan in Wife’s name only for the sole purpose of improving her credit score and because Husband had a poor credit rating. The home was, therefore, titled in Wife’s sole name as her sole and separate property. Husband subsequently signed a Disclaimer Deed indicating he waived any community property interest in the home and confirming the home as Wife’s sole and separate property. The parties paid the mortgage with community funds throughout their marriage.
The Arizona divorce trial court ruled that the evidence presented at trial clearly proved the parties’ intention at the time they purchased the home was that the home was to be community property and, further, that Husband did not intend to gift his community property residence to Wife as her sole and separate property.
The Arizona Court of Appeals analysis of the issue began with the rule of law in Arizona that all property acquired during a marriage in Arizona is presumed to be community property, pursuant to another appellate case; namely Rickenbaugh v. Deane. Thereafter, property acquired by either spouse during a marriage retains that character as community or sole and separate property throughout the marriage, citing the Arizona Appellate case of Honnas v. Honnas.
The Arizona Court of appeals referred back to its prior ruling in Bender v. Bender for the proposition that spouses are free to determine the status of their property during a marriage as either sole and separate property or community property.
The Arizona Court of Appeals concluded that Husband waived his community property interest by signing the Disclaimer Deed to the home. The Court specifically rejected Husband’s attempt to distinguish his case was different from the prior Bender case because community funds were used to purchase the home whereas separate funds were used to purchase the home in the Bender case. Specifically, the Court held that the Bender decision was not based upon whether separate or community funds were used to purchase the property but, instead, the sole existence of a Disclaimer Deed signed by a spouse. The Court also noted that Husband had not claimed his signing of the Disclaimer Deed was the result of Fraud or Mistake.
The Arizona Court of Appeals specifically rejected the argument that the intention of the parties as to whether the home would be separate or community property did not matter and that the plain language of the Disclaimer Deed providing that the Wife was to take ownership of the property as her sole and separate property was to be enforced.
The Court also distinguished the prior Arizona Supreme Court’s ruling in the In Re Sims’ Estate case by ruling that held a trial court must determine the parties’ intentions at the time the property is acquired, as well as a demonstrating of contemporaneous conduct consistent with that intent. The court justified its distinction on the In Re Sims’ Estate case by pointing out that the husband in this case never had an interest in the home when it was purchased and, therefore, the requirement of Sims’ that contemporaneous conduct inconsistent with the intent to waive a community property interest in the home applied.
Wife rebutted the presumption that the home acquired during the marriage was community property by introducing the Disclaimer Deed into Evidence. The burden of proof then shifted to Husband to present sufficient evidence to establish a community property claim to the home.
Disclaimer Deed and Divorce AZ | Don’t Forget the Community Lien
Although the Arizona Appellate Court confirmed the home as Wife’s sole and separate property, it also concluded the community has an interest in the home as a result of the creation of a “community lien”, as a result of the community funds that were used to decrease the mortgage balance owed on the home and community funds used to make improvements to the home to the extent it increased the value of the home.
The take away from this case are that a spouse who signs a Disclaimer Deed to a home or other parcel of real estate presumptively waives their community property interest to that property. That spouse then bears the burden of proving that the signing of that Disclaimer Deed was the result of fraud, mistake or other evidence to establish the home was community property, such as a subsequent Deed titling the home back to the parties as community property.
The other take away was the recognition of the existence of a community lien against the home. Understanding that the community lien is not an ownership interest in the home but, instead, an unsecured community claim against the home. This community lien is not the equivalent of the amount of the payment made on the home but, instead, is only the extent to which the mortgage balance was decreased. Also, the community lien is not the amount spent on the home to improve it but, instead, the extent to which those improvements increased the market value of the home. Even then, you should understand that community lien belongs to both Husband and Wife such that it will be equitably divided between both Husband and Wife, which likely results in Husband receiving only one half of those amounts.
The Story May Not End There
The Arizona Court of Appeals in the Flowers case held in a separate case that although a sole and separate home was turned into community property during the marriage, a trial court may have the authority to award 100% of that home to the spouse who originally owned it as sole and separate property if it is equitable to do so.