Tracing Separate Property Commingled With Community Property

In Arizona, courts presume that property a couple acquires during marriage is community property. A spouse can overcome this with clear and convincing evidence. In Kingsberry v Kingsberry 379 P.2d 893 (1963), the Arizona Supreme Court of addressed this issue.

Facts of the Case

Mrs. Kingsberry and Mr. Kingsberry divorced in 1963. While they were married, husband had acquired an interest in a ranch with his father. He also acquired stock in Western Drilling Company. Wife claimed that these were community property assets. The trial court awarded them to husband as his separate property, however, and wife appealed.

N-Bar Ranch

Husband and his father purchased the N-Bar Ranch as a partnership venture, each owning a one-half interest. The father put the deal together and used his personal money to buy the property. The deed conveyed the property interest to husband “as his sole and separate estate”.

A third party manager operated the ranch as a stock-raising business. Husband often used his separate funds to buy sheep and improve on the land. The Arizona Supreme Court agreed with the trial court’s decision that the interest in the ranch was husband’s separate property.

Mrs. Kingberry’s name was on the mortgage however, but only because the lender insisted on it. The fact that separate and community funds were in the same account did not make them all funds community funds. In this case, husband kept careful records as to how much was his separate property.

Western Drilling Stock

Husband furthermore bought ten shares in Western States Drilling Company with his separate funds. From time to time, he loaned community money to the company. Wife argues that this “commingling” converted the stock into community property, but the Court of Appeals disagreed.

Arizona law describes what happens if the community invests money in the separate property of one spouse. The property remains separate but the community has a lien for the amount invested. In the Kingberry’s case, Western Drilling repaid all of the community loans in full. Therefore, the community could not claim a lien.

Disposition

The Court of Appeals affirmed the trial court’s decision. This case was distinguished by the Arizona Court of Appeals in the Hanrahan v. Sims case.