Intention of Spouses Controls Transmuting of Separate Property Into Community Property
In Arizona, when a spouse uses separate property to purchase property taken in the name of both spouses, it is presumed to be a gift. The intention of the couple also plays a significant role in property division in Arizona.
But, what happens when a couple’s intentions are misguided by misinformation about how community property laws work in Arizona? In Noble v. Noble 546 P.2d 358 (1976), the Court of Appeals addressed this issue.
Facts of the Case
Mrs. Noble and Mr. Noble married in 1956. Mrs. Noble filed for dissolution of the marriage in 1963. She had considerable separate property at the time of the marriage. This included income from a trust fund. The couple lived solely on that income until 1963. At that time, husband got a job.
Mr. Noble and Mrs. Noble kept joint bank accounts in several different states and in Denmark. In 1958 they purchased “Tangeaard”, a manor farm in Denmark, with wife’s money. In 1961 they purchased the “Bend Ranch” property in Arizona, also with wife’s funds.
Mrs. Noble appeals from the trial court’s order dividing these two properties and the income from the ranch. Husband appeals from the trial court’s determination that a painting, the “Boucher painting”, was wife’s sole and separate property.
The trial court ruled that when the couple bought Tangeaard, it was community property. It ruled that it would remain community property throughout the divorce. However, the court agreed that it was subject to wife’s separate property lien in the amount of $50,000.00. This amount equals the purchase price of $35,000.00 and capital improvements of $15,000.00, paid for by wife’s separate funds.
Wife argued that the court did not have the authority to determine an owner to the title of the land in Denmark. The Court of Appeals agreed with this statement of law. However, it said that the court was not determining title, but only their individual interests in the property.
Next, Mrs. Noble argued that the property must be her separate property since it was purchased with her separate funds. In Arizona, the court does not presume an intention to gift if a spouse’s deposits are separate funds in a joint account.
However, the law presumes a gift if a spouse buys property and puts both spouses’ names on it. The Court said that the transmutation of property status was a question of intent. Under Arizona law, a couple can, by their intent, transmute the character of separate property to community property.
The Court then looked in the record for evidence of the intent of the wife and husband. The evidence suggested that they intended to hold their property in accordance with community property law. However, they unfortunately misunderstood the law.
When they bought the house in Denmark, they believed that income from Mrs. Noble’s separate property was community property. They also thought that real property purchased during the marriage was community property.
In 1963, husband learned that income from separate property is also separate property. At that time, he renounced all interest in the money wife used to buy the Denmark property. However, the fact remained that when the couple bought the house, they intended it to be community property.
The trial court tried to give effect to these intentions in its ruling. It held that the house was community property, but subject to a lien for wife’s separate funds. The Court of Appeals agreed with this approach. It affirmed the ruling.
The Nobles also bought the Bend Ranch property after they had learned that the income from wife’s separate property remained her separate property. They wanted the Bend Ranch to be community property so they didn’t use wife’s separate funds for the down payment. Instead, they borrowed the money from a life insurance policy owned by wife prior to the marriage.
They thought this would make the purchase community property. They did not realize that this would also be separate property. However, it supports the conclusion that husband and wife fully intended the Bend Ranch property to be community property.
The trial court ruled that the Bend Ranch property and the income from that property was community property. It proceeded to impose a lien in wife’s favor on the property to repay the loan. The Court of Appeals, again, agreed with its reasoning.
Wife bought the Boucher Painting with a check written from the joint bank account. Husband claimed that he had started working by that time. He had also added money to the joint bank account, which made all money within the account community property. The Court disagreed.
Wife did not transmute her separate funds just because they were in a joint account. This is especially true when the amount of community funds from husband’s earnings only amounted to $3,000 for the entire year.
The painting, purchased with her separate funds, is her separate property.
The Court of Appeals affirmed the trial court’s decision.