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How Separate Property Can Be Turned Into Community Property

Posted on : August 4, 2016, By:  Christopher Hildebrand
How to Convert Separate Property Into Community Property

How Separate Property Can Be Turned Into Community Property

In Blaine v. Blaine 159 P.2d 786 (Ariz. 1945), the Arizona Supreme Court evaluated a divorcing couple’s property division.

Facts of the Case

The Blaines married in 1935. When they married, Husband owned a personal service business, a home, and some rental property. He also owned stocks, bonds, accounts receivable, and car and life insurance policies with cash surrender values. At the time of the marriage, Husband’s assets, not including the real estate, was worth about $17,600.

The couple had two daughters who were 3 years old and 4 months old when wife filed for divorce. The family court granted her a divorce in 1942.

Trial Court’s Ruling

The trial court evaluated the couple’s income. It also reviewed how husband managed that income. Before the marriage, husband had a commercial account with Valley National Bank. After the marriage, he deposited all of his business income in that account.

Husband also deposited all money from his separate properties in the same account. All community and separate money were commingled in the same account.

During marriage Husband bought property with the money in the commingled bank account. The property held by the couple at time of divorce included:
Accidentally Commingling Funds Loses You Money
• Cash $6,436.32;

• accounts receivable, less accounts payable, $4,056.07;

• Polk Street real estate $2,100;

• increase in cash value life insurance policies $1,110;

• additions to household goods, $1,890.18;

• additions to office equipment $404.39;

• 32 shares of Valley National Bank stock $312.

These totaled $16,308.96. Of this, $786.91 of the cash was the separate property of Husband.

The trial court ruled that the increase in insurance cash value and the office furniture were Husband’s separate property. The remainder it ruled was community property. It also resolved custody, visitation, maintenance, and attorney fees and costs issues.

Both husband and wife appealed from the judgment.

Wife’s Appeal

A. Custody Issues

Wife argued on appeal that Husband was not a fit parent. She argued that he should not have any custody time at all with his daughters. The Arizona Supreme Court declined to second guess the family court on custody issues. It said that the wife could raise the matter at any time before the family law court to modify custody.

B. Alimony and Child Support

The family court awarded Wife $125 a month for maintenance for herself and the two girls. She claimed this was unreasonable.

The Supreme Court agreed since Husband paid $150 in monthly support during the divorce. The Court increased alimony and child support to $175 a month.

C. Court Costs and Attorney Fees

The family court awarded Wife $250 for court costs. Wife argued that this was inadequate and unreasonable. The Supreme Court found that Wife paid over $500 in auditor’s fees to uncover considerable community property. It found the $250 award wholly insufficient and ordered an award of $600.

The trial court also awarded Wife $250 for attorney fees. The evidence showed that her attorneys spent three weeks preparing the case and five days at trial. The reasonable value of these services was $1,250.

The Supreme Court said that trial courts must award attorneys fair and reasonable compensation for their services. Given the efforts of counsel in this cause, the Court awarded Mrs. Blaine $1,000 in attorney fees.

D. Life Insurance Value Increase and Office Furniture

In Arizona, all property a couple acquires during marriage, except gifts or inheritance, is considered to be community property. A spouse claiming that property purchased during marriage is his separate property must prove it by clear and convincing evidence.

Sometimes a couple commingles separate and community funds in one account and unknowingly treats it as community property. When this happens, the entire amount can become community property. The Blaires had mixed separate and community funds in their account. Therefore, the Court said, funds in the account were community property.

Likewise, everything they purchased with this money in this account was community property. That included the increase in the cash value of the life insurance policy and the office furniture.

Husband made payments for these items from the commingled account. He did not designate that the payments should be from his separate funds. For this reason, the Court ruled that the community owns the increase in the policy value and the office furniture.

E. Polk Street Property

Husband bought the Polk Street property with separate funds. However, he asked the accountant to make out the deed in both his and Wife’s name. And after he bought it, he treated it as their joint property. He even paid taxes on the house from community funds.
How Commingling Property Loses You Money
When they thought of selling the house, the contract included both Mr. Blaine and Mrs. Blaine as owners. Husband reported the $500 paid on the purchase price as joint income. Husband never claimed that the Polk Street property as his separate property until the divorce.

In court, Mr. Blaine said that he did not intend to buy this property as community property. He said he did not intend to gift Mrs. Blaine a one-half interest in the home. No other evidence suggested that husband intended the Polk Street property to remain separate property.

The Supreme Court found that husband’s trial testimony was not sufficient, given his prior behavior. For example, Mr. Blaine had no reason to put wife’s name on the deed. The Court held that wife owned a one-half interest in the Polk Street property.

Husband’s Appeal

A. Accounts Receivable

First, Husband claims that his business had $4,657.91 in accounts receivable at the time he married. He said that the trial court should have taken this into account when figuring his separate property.

He argued that the court should have given him a credit in this amount against the cash. However, the Supreme Court found no evidence that husband ever collected the bills receivable. The evidence showed that when the couple married, they had no cash.

Husband presented no evidence that the clients paid these bills. Therefore, the Court said, the trial court rightly disallowed any credit against the cash balance.

B. The 32 Shares of Valley National Bank Stock

When he married, Husband owned 25 shares of Valley National Bank stock. After the marriage he bought 13 more shares. The bank issued a stock dividend of one-half share for each outstanding share of stock and husband got 19 shares.

The Divorce Court ruled that the 13 shares husband had purchased after marriage plus the 19 dividend shares were community property. The Husband appealed this ruling.

The Supreme Court found that the 13 shares purchased after marriage were community property. However, not all of the 19 dividend shares were community property. Only those dividend shares attributable to the 13 community property shares—6.5 of the dividend shares—were community property.

C. Household Goods

The trial court gave Wife the household goods and furniture as her separate property. The Arizona Supreme Court agreed. It said that the divorce court was justified as treating them as gifts to the wife.

Disposition

The Arizona Supreme Court reversed the Trial Court’s decision. It remanded the case to the trial court to reform the judgment as specified in this opinion. The Arizona Court of Appeals distinguished the decision in this case in the appeal in the In re Marriage of Fong case.


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