Gift of Separate Property Through Joint Tenancy Deed
In Arizona, when a spouse purchases real estate with their separate funds, it is considered their separate property. If a spouse takes the title in joint tenancy with the other spouse, however, courts may presume there was an intention to gift the property to the community.
Given this, is a spouse entitled to reimbursement for funds used to purchase real estate? In Valladee v. Valladee 718 P.2d 206 (1986), the Arizona Court of Appeals considered this question.
Facts of the Case
Mr. Valladee and Mrs. Valladee married in 1966 and had four children. Mr. Valladee was a Ute Indian. He had an account with the Bureau of Indian Affairs (BIA account) into which the Ute tribe periodically deposited money. Husband also inherited two parcels of tribal land which he sold back to the tribe for $50,000. This money was also deposited in the BIA account as his separate property.
After marriage, Mr. Valladee decided to purchase five parcels of real estate. He withdrew $60,000 from the BIA account for a down payment. He asked that the deed of each parcel list himself and his wife as joint tenants.
He opened a business account (also in his and wife’s names) into which he deposited the rents from the properties. He managed the investment business and spent a substantial amount of time doing so.
Mr. Valladee and Mrs. Valladee never discussed whether the properties were his separate property or community property.
Mrs. Valladee assumed that she had an equal interest since the couple held them in joint tenancy.
At trial, the husband said he put the properties in joint tenancy to avoid probate and give his wife security. He said he always meant to keep them as his separate property.
Mr. Valladee later bought seven investment properties through the business account. He took title to each of them in joint tenancy with his wife.
Since the properties were in joint tenancy, the trial court found that Mr. Valladee gifted a half interest to his wife. However, it held that it would consider the separate source of the funds when dividing the property.
It gave Frank 62% of the property to “reimburse” him for using separate funds to make the down payments.
The Trial Court’s Ruling That Frank Made Gift to Wife
First, the Court of Appeals considered whether the trial court had authority to find that husband had gifted a half interest to his wife. It determined that the trial court acted well within its discretion.
Arizona courts presume a gift when a spouse places separate real property in joint tenancy with the other spouse. Only clear and convincing evidence proving that was his a spouse’s intention can rebut this presumption.
A husband’s after-the-fact testimony that he never intended a gift is insufficient and not clear and convincing evidence.
Here, Mrs. Valladee and Mr. Valladee did not have a common understanding or agreement that the investment properties were husband’s separate property. Wife testified that she believed she had an interest when Frank asked her to sign the joint tenancy deeds.
Trial Court’s Decision to Award Frank A Larger Share
Mrs. Valladee appealed the decision of the trial court to award husband 62% of the jointly held property. It did this to reimburse Frank for his expenditure of separate funds.
The Court of Appeals also found that the trial court abused its discretion. The Court did not agree with wife’s rationale for denying reimbursement in this case. She argued that husband was not entitled to reimbursement under Baum v. Baum, 584 P.2d 604 (1978). That case prohibited community reimbursement for a spouse’s separate fund expenditures for community debts absent an agreement between spouses.
In Malecky v. Malecky, 713 P.2d 322 (1985), this was applied to a joint tenancy situation. The Court refused to follow Malecky. It said that the Baum case rule has only been applied to community property, other than in the Malecky case. It noted that, under the laws of joint tenancy, reimbursement to a contributing co-tenant is sometimes permitted. Malecky found that the presumed gift was to the community, not the individual spouse.
The Court said the majority view is that a presumed gift is to the spouse individually as a joint tenant. The Court said that this was also the better view.
That approach is consistent with the rule in Arizona regarding the legal effect of a couple holding property jointly. That is, each spouse takes an undivided separate property interest in one-half of the property.
Here, the joint tenancy deeds themselves state that the parties are not taking the properties as community property.
The Court of Appeals discussed the effect of placing the separate property in joint tenancy with the other spouse. When this happens, courts presume that the spouse is making an individual gift to the other of one-half of the property. The property converts from the separate property of the one spouse into the joint property of both. Each is treated as a joint tenant if they divorce.
In Arizona, a joint tenant is entitled to reimbursement for separate funds expended for the benefit of the common property. However, that rule only applies once the property is in joint tenancy. A party cannot be reimbursed for separate funds used to purchase the property.
Here, Mrs. Valladee and Mrs. Valladee didn’t have a common interest when Frank spent his separate funds to buy the investment properties. She had no interest in the properties as she was not yet a joint tenant.
The Court of Appeals ruled that the trial court abused its discretion. It had no legal authority to award husband a larger amount of the investment properties than her.
The Court of Appeals reversed the decision of the trial court. It remanded the case with instructions for the trial court to equitably divide the investment properties. The Arizona Court of Appeals distinguished this case from its prior ruling the Baum v. Baum case.