When Separate Property is Used to Buy Community Property in Arizona
Inboden Equitable Division of Marital Property Issues
In Arizona, a divorce court must divide a home that is marital property equitably, and, absent other factors, equitable means equally. However, a court can fashion an equitable division that is not equal after considering the length of the marriage, the contributions of each spouse’s separate property to purchasing or fixing up the house and similar factors. The question sometimes arises as to what a court may do when separate property is used to buy community property in Arizona.
In the case of In Re Marriage of Inboden, 225 P.3d 599 (Ariz. Ct. App. 2010), the Arizona Court of Appeals discussed whether a divorce court can divide the equity in a marital home on the basis of each spouse’s contribution of separate property to its purchase.
Lowell and Carolyn Inboden married in 2005. Just before the marriage, Carolyn invested $90,000 of her own money in a piece of land. After the marriage, the couple built a house on that land, with Carolyn using $67,000 of her separate funds and Lowell paying $46,500 of his separate funds.
The house was finished a year after the marriage, and the spouses transferred ownership to the community into joint tenancy with right of survivorship. However, Lowell moved out after a few months and Carolyn filed for divorce the following year.
The main argument at trial concerned the division of the equity in the marital residence. The court divided it according to the value of the separate property each spouse invested in it – with Carolyn receiving about three times the amount Lowell was awarded. Lowell appealed.
Arizona Law Permits an Equitable Division that Is Not an Equal Division
Lowell argued that he was entitled to one-half of the equity in the property. He claimed that when he and Carolyn transferred separate property into joint tenancy, it was a gift to the community.
The Court of Appeals agreed with the general proposition that placing the property in joint tenancy constitutes a gift to the community, but noted that jointly held property was subject to equitable, not equal, division.
Property Division Cannot Be Based Solely on Each Spouse’s Financial Contributions, but that Can Be One Factor Considered
The Court of Appeals noted that in Arizona, a divorce court has broad discretion in how to divide property and debts between spouses. But it cannot order an unequal division of marital property solely to pay back one spouse for separate funds used to buy the property.
On the other hand, a court can consider the contributions made by each spouse as part of the whole picture when it determines a fair way to divide the marital property. In fact, the court should consider all relevant factors, including how long the marriage lasted, the contributions of each spouse to the community, the source of funds used to buy the property to be divided, and who has to pay the debt.
In the Inboden divorce, the trial court based the division completely on the separate fund contributions of each spouse. Therefore, the Court of Appeals sent the case back to the trial court for another evaluation.