Separate Property Increase in Value During Marriage
Cockrill: Increase in Separate Property Value During Marriage
Arizona is a community property state. That means that when a couple marries, all of the earnings of either spouse belong to the community, e.g., to both spouses. During a divorce, community property is divided between spouses. The property a spouse brings into the marriage is separate property and is usually awarded 100% to him or her in a divorce. What happens when one spouse’s separate property increases in value during the marriage? In the case of Cockrill v. Cockrill, 124 Ariz. 50, 601 P.2d 1334 (1979), the Arizona Supreme Court discussed how Arizona courts should determine whether an increase in value to the separate property of one spouse is separate or community property.
Facts of the “Cochrill” Case
Robert E. Cockrill, Sr., and Rose Cockrill were married in 1974 and ended in 1977. At the time of the marriage, Robert owned Cockrill Farms, a farming operation. During the marriage, the value of the farms increased by $79,000. Rose argued that the increase was community property and that she was entitled to a share of it. The divorce court agreed. It found that the farm had increased in value largely because of the efforts of Robert and that the increase was, therefore, community property. Robert appealed, arguing that the increase was due to the inherent qualities of the farm and thus was his separate property.
Conflicting Presumptions Regarding Separate Property
The Supreme Court noted that cases in Arizona were in conflict about what presumption should apply to an increase in the value of separate property during marriage. One line of cases held that property acquired during the marriage is presumed to be community property, and if a spouse wants to overcome that presumption, he or she must show by clear and convincing evidence that the property was his separate property. The other line of cases held that when the value of separate property increased during the marriage, there is a presumption that the increase is also separately owned. Under this line of cases, the spouse who claims that the increase is community property must prove by clear and convincing evidence that the increase was due to the labor and efforts of the community and not the product of the inherent qualities of the separate property.
The Arizona Supreme Court found that the first line of cases was correct. That is, it ruled that, in Arizona, an increase in the value of separate property during a marriage is presumed to be due to the efforts of the spouses, and thus community property. A spouse arguing that the increase in his separate property must prove that the increase was the product of the inherent qualities of the property, not the efforts of the spouses.
The Formidable “All or None Rule” in Arizona
The law in Arizona at the time the Supreme Court heard the case provided that an increase in the value of separate property during a marriage was either separate or community. If a spouse proved that the increase was entirely due to the inherent value of the property itself, it was allocated 100% as separate property. Otherwise, it was allocated 100% to community property. This rule, known as the “all or none rule,” had been adopted by the Arizona Supreme Court some years before, citing language from a Nevada case. The Court noted that Nevada had since renounced the rule, together with most other states. These states now allowed the divorce court to apportion the increase in value between separate and community property.
That is, in those states a divorce court could find that the increase in value was partially due to community efforts and partially due to the inherent qualities of the property. It would then attribute the portion earned by the spouses’ efforts to community property, and the rest to separate property. The Arizona Supreme Court decided to abandon the all or nothing rule in favor of an apportionment rule. “We, therefore, also depart from the all or none rule and hold that profits, which result from a combination of separate property and community labor, must be apportioned accordingly.” It suggested several potential ways of apportioning the profits between the two but left the divorce court to determine the method. It sent the case back down to the divorce court to apportion the $79,000 between separate and community property.