How is Property Purchased During Marriage With Sole and Separate Property Treated in an Arizona Divorce
In Arizona, property owned by a couple during the marriage can be held separately by one of the spouses. It can also be community property, owned by both spouses. In certain cases, the separate property of one can become the community property of both.
This can happen as the result of commingling of separate and community money, or as the result of a gift from one spouse to the community. In the case, Bourne v. Lord, 506 P.2d 268 (1973), the Court of Appeals considered whether the separate property had changed to community property.
Facts and Background
Mr. Lord and Mrs. Lord were married in 1952. At that time, husband owned some land in Pima County. In 1955, he arranged to exchange this property for a trailer court. As part of the deal, he assumed the mortgage on the trailer court.
Both the deed and the mortgage named Mr. Lord and Mrs. Lord. However, Mr. Lord said he did not know that occurred. Mr. Lord and his wife operated the trailer court together. He also worked in a restaurant in the evenings.
Husband put all his earnings and income from the trailer court in one bank account. He wrote checks on that account for mortgage payments on the trailer court and living expenses.
A few years later, husband arranged to borrow $25,000 to pay off debt including the mortgage on the trailer park. He and Mrs. Lord executed the note.
Mr. Lord said his wife’s name appeared only because the lender insisted it was customary. In 1960, husband sold the trailer court. Both Mr. Lord and Mrs. Lord executed the deed. When it appeared they were to receive preferred stock, husband instructed the buyer how to Deed the stock. He said to give half of the stock to each spouse as his or her separate property. However, the seller never issued any stock certificates.
Wife died and her estate went to probate. Her executor asked the court to rule that the proceeds from the trailer court sale were community property. However, the lower court ruled that the trailer park was husband’s separate property. Mrs. Lord’s estate appealed.
Husband Acquired the Trailer Park as His Separate Property
Since Mr. Lord acquired the trailer park during the marriage, courts presume that it was community property. He had to prove by clear and convincing evidence that it was his separate property. The Court reviewed the evidence.
First, it considered how husband acquired the property. He bought it in an exchange of his own separate property. He did not spend any community funds in the purchase.
The Court noted that property acquired after marriage in exchange for property owned before marriage remains separate property. Although the seller conveyed the trailer court to both husband and wife, Mr. Lord testified that he didn’t ask to have his wife’s name on it. He also testified that he did not know about it. Therefore, the Court found, the form of the deed didn’t alter the status of the property.
The executor of Mrs. Lord’s estate next claims that the property transmuted to the community because of commingling. Since the couple maintained only one bank account, the trailer court earnings were mixed with community money. However, the Court said that the mere commingling of funds did not change the status of the property.
This is true even if those commingled funds paid in part for Mr. Lords’ separate property expenses. The community acquired a claim for reimbursement of the community funds expended. But it did not acquire an interest in the title of the property.
The Court of Appeals agreed with the trial court that the note and mortgage were husband’s separate property. Mr. Lord bought the trailer court as his separate property, and no evidence established a transmutation to community property. Therefore, the proceeds from its sale are his separate property.
No Gift Because Stock Was Not Issued
The executor of Mrs. Lord’s estate argued that Mr. Lord made Mrs. Lord a gift of half of the proceeds from the sale. He points to the document Mr. Lord executed that directs the buyer to issue stock in Mrs. Lord’s name as her separate property.
He also points to a conversation where Mr. Lord stated that he had given half the “proceeds” to his wife to get rid of her. However, the trial court found that this conversation only referred to the stock. It concluded that since no stock was issued, the attempted gift failed. It furthermore found that the document only reflected an intention to make a gift, but the gift never happened. The Court of Appeals agreed and rejected the gift argument.
The Court of Appeals affirmed the lower court decision.
Chris Hildebrand wrote this article to ensure everyone has access to information about family law in Arizona. Chris is a divorce and family law attorney at Hildebrand Law, PC. He has over 24 years of Arizona family law experience and has received multiple awards, including US News and World Report “Top Arizona Divorce Attorneys”, Phoenix Magazine “Top Divorce Law Firms”, and Arizona Foothills Magazine “Best of the Valley” award. He believes the policies and procedures he uses to get his clients through a divorce should all be guided by the principles of honesty, integrity, and, quite frankly, actually caring about what his clients are going through in a divorce or family law case. In short, his practice is defined by the success of his clients. He also manages all of the other attorneys at his firm to make sure the outcomes in their clients’ cases are successful as well.
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