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Effect of Placing Community Property Into a Family Trust in Arizona

Fri 3rd Jun, 2016 Arizona Community Property Laws

We want to talk to you about the effect of placing community property into a family trust in Arizona. In Arizona, each spouse is a co-owner of all property earned by the other spouse during marriage. However, one spouse may gift the other his interest in community property, making it the separate property of the other.

During a dissolution of marriage case, the trial court must divide the community property between the spouses equitably. In Schwartz v. Schwartz, 52 Ariz. 105, 79 P.2d 501, 116 A.L.R. 633, (1938), the question before the Arizona Supreme Court was whether the lower court’s division of property was fair and equitable, given all the circumstances of the case.

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Facts of the Case

William and Harriet Schwartz were married in 1918 and divorced in 1936. By 1930, the couple’s relationship was so strained that William – an Arizona surgeon — moved out of the house, providing Harriet and their daughter money each month to live on. He also signed over the home into Harriet’s name. In 1931, William started a trust for his daughter, using $47,208 of community property and $10,000 in inherited property belonging separately to Harriet.

In the divorce, the judge treated the $47,208 of trust assets as community property, and awarded it to Harriet, together with the value of the house, some $15,000. William was awarded the $72,875 in earnings that he had at the time of the divorce.

William was ordered to pay spousal support of $100 per month and child support of $200 per month. Harriet appealed, claiming that the trust monies had been given to her already, so they were her separate property. She argues that the trial court should have awarded her half of the remainder of the community property.

Trust as Community Property

The trial court determined that the trust was not the separate property of Harriet, even though she held a beneficial title to it. The Supreme Court reviewed its reasoning. The only evidence about why the trust was made was the testimony of William. He said he did it to ease his wife’s mind that he would not leave her and their child without support. His intention was for her to have the income from it, not the assets themselves. Given this, the Supreme Court ruled that the assets in the trust did not become Harriet’s separate property. They remained community property and were properly awarded during the division of community property.

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Trial Court’s Division of Marital Property

The Arizona Supreme Court reviewed the ultimate property division in the case and determined that it was equitable and that the lower court did not abuse its discretion in dividing it as it did. It noted that if Harriet was to have the trust assets and house as her own and awarded half of the remaining community property, she would have ended up with three-quarters of the community property rather than half.

If you need information about the unequal division of property in an Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona divorce attorneys have over 100 years of combined experience successfully representing clients in divorce cases in Arizona.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your Arizona divorce case around today.

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