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Using Community Funds to Pay a Mortgage on a Spouse’s Sole and Separate House

Posted on : November 17, 2016, By:  Christopher Hildebrand
Using Community Funds to Pay a Mortgage on a Spouses Sole and Separate House

Using Community Funds to Pay a Mortgage on a Spouse’s Sole and Separate House

In a divorce, the separate property belongs to the spouse holding title, while community property belongs to both spouses. Generally, a property that is acquired separately remains separate during the marriage. Under certain circumstances, separate property “transmutes” into community property.

If a spouse pays expenses for a separate property with community funds, does that transmute the property status from separate to the community? Does an oral agreement converting the property to community property change its status? The Court of Appeals considered both of these issues in Schock v. Schock, 461 P.2d 697 (1969).

Facts and Background

Using Community Funds to Pay a Mortgage on a Spouses Sole and Separate House.

Using Community Funds to Pay a Mortgage on a Spouses Sole and Separate House.

Mr. Schock and Mrs. Schock married in 1948 and remained married until husband’s death in 1967. They had no children.

When Mr. Schock married Mrs. Schock, he owned a large ranch in Elgin, Arizona. During the marriage, he operated the ranch and the couple lived in a house on that property. They also shared a bank account with each spouse depositing all income and earnings in that account.

Husband paid the mortgage, expenses, taxes and all costs of maintaining the ranch from these community funds. After his death, the probate court found that part of the ranch had become community property. It awarded Mrs. Schock a probate homestead, including the house and 120 acres, and vested absolute title in her.

The estate executor sought review of this decision. He asked the appellate court to determine whether the ranch was community property or Mr. Schock’s separate property.

Court Can Award Surviving Spouse a Probate Homestead

Under Arizona law, the probate court can set apart a homestead for the surviving spouse and children. The executor of Mr. Schock’s will argues that a surviving spouse without children is not eligible for a probate homestead. The Court of Appeals disagreed. It relied on and cited a state Supreme Court opinion to the contrary, In re Stanger’s Estate, 257 P.2d 593 (1953).

Was the Ranch Transmuted from Separate to Community Property?

The executor of Mr. Schock’s estate argued that the ranch remained his separate property. Under Arizona law, the court can award a probate homestead from separate property. However, it can only award this for a fixed period, not permanently.

The Court of Appeals agreed with the executor and found that the ranch remained husband’s separate property. It said that the character of property (separate or community) depends on its status when the spouse acquires it. A property keeps its initial status unless it is changed by agreement or operation of law.

Community Funds Used to Pay a Mortgage on a Spouse's Sole and Separate Property in Arizona.

Community Funds Used to Pay a Mortgage on a Spouse’s Sole and Separate Property in Arizona.

Here, Mrs. Schock argues that she and Mr. Schock had an oral agreement transmuting the ranch to community property. That, she claims, is supported by the fact that he used community money to pay the mortgage.

She also points to the fact that the marital residence is on the property. She claims that Mr. Schock told her several times that he intended her to have the house. The Court found this evidence insufficient to prove an executed oral agreement transferring ownership to the community.

The fact that the couple commingling funds and used these funds to pay ranch expenses did not transmute the status of the property. Nor did the fact that the property was the family home for almost 20 years. The Court found the trial court was wrong in determining that the ranch was community property. It could only grant Mrs. Schock a temporary probate homestead in it.

Size of Probate Homestead

The executor last argues that the amount of property in the probate homestead – 120 acres—is too large. However, the Court said that the law does not limit the size or value of homesteads.

Disposition

The Court of Appeals reversed the part of the judgment awarding Mrs. Schock the property. It returned the case to the lower court to designate a limited period for the probate homestead.



Hildeband Law, PC.


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