I. Introduction
Under Arizona Revised Statutes § 25-318 (A), Arizona divorce judges are directed to “divide the community, joint tenancy and other property held in common equitably . . . .”
Over the years, Arizona courts have interpreted this statute to require that “all marital joint property should be divided substantially equally unless sound reason exists to divide the property otherwise.” Toth v. Toth, 946 P.2d 900, 903, 190 Ariz. 218 (1997) (citing Hatch v. Hatch, 113 Ariz. 130, 133, 547 P.2d 1044, 1047 (1976)). This article will address the limited circumstances under which an Arizona court may stray from the general rule that jointly held real estate be divided substantially equally.
When a husband and wife acquire jointly titled real estate during their marriage using during-marriage earnings or financing to purchase the real estate, there is virtually no basis for either spouse to argue for an unequal division of such real estate. In this situation, the real estate will, without any foreseeable exception, be divided substantially equally between the husband and the wife.
There are two fairly common scenarios, however, in which one spouse may be able to make a tenable claim that real estate should be divided unequally because an equal division would not be equitable. The first situation is where one spouse brings a piece of real estate into the marriage and subsequently adds his or her spouse’s name to the deed. The second situation is where, during the marriage, one spouse uses sole and separate funds to acquire real estate but where title to the real estate is nevertheless taken in both spouses’ names.
In such situations, the “separate property spouse” may argue, first, that by putting his spouse on the deed to the property, he did not intend to make a gift to her; and second, that even if a gift were intended, given the facts and circumstances of the particular case an equal division of the real estate would not be equitable.
II. No gift was intended.
Under Arizona law, a presumption of a gift to the marital community arises when title to real estate is taken in both spouses’ names during the marriage. Toth v. Toth, 190 Arizona 218, 946 P.2d 900, 902 (Ariz., 1997) (citing Bechelli v. Becchelli, 109 Arizona 229, 232-33, 508 P.2d 59, 62-63 (Ariz., 1973)). The burden then shifts to the spouse asserting separate property rights to prove, by clear and convincing evidence, that no gift was intended.
To meet this burden, the separate property spouse would likely need to produce a written agreement made concurrently with the titling of the real estate in joint names which provides that the act of putting the real estate in both parties’ names was not intended to convert the real estate from separate property to joint property. If the separate property spouse successfully proves by clear and convincing evidence that a gift to the other spouse was not intended by placing the deed in joint names, that is the end of the inquiry. The real estate will be affirmed to the separate property spouse.
III. Equitable division is not equal
If the separate property spouse is unable to rebut the presumption of a gift, the separate property spouse may still argue that, on the facts of his particular case, an equal division of the real estate between Husband and Wife would not be equitable. Arizona trial courts in divorce cases clearly have the authority to divide marital and other joint property unequally if the court finds that, on the facts of the particular case, an equal division would not be equitable. Toth, 946 P.2d at 904; In re the Marriage of Flower, 255 P.3d 588, 593-596 (Ariz.App., 2010).
In order to divide jointly held property unequally, the Court must find a “sound reason” to do so. Flower, 225 P.3d at 593, citing Toth, 190 Ariz. at 221, 946 P.2d at 903. Determining what is “equitable” is in the Court’s discretion and is dependent on the facts of each case. Id. Factors the Court may consider include the source of funds used to purchase or improve the property and all other factors the Court decides are relevant in determining an equitable division, “such as, but not limited to, the duration of the marriage.” Id. An unequal division of joint property may not be ordered, however, solely to reimburse the separate property spouse. Toth, 946 P.2d at 904 (citations omitted).
Although an unequal division may not be awarded solely to reimburse the separate property spouse, two significant factors in the cases seem to be contributions by the separate property spouse and a short marriage duration. See generally Toth and Flower, supra. Specifically, when one spouse brings significant separate real estate into a marriage, puts his spouse on the deed(s), and the marriage ends very shortly thereafter, it simply does not seem fair that the separate property spouse should have to part with a full 50% of the real estate he brought into the marriage.
IV. Case study
Consider the facts of the following actual case. The parties will be referred to simply as “Husband” and “Wife.” Husband and Wife were married for six years before they separated. Wife brought virtually nothing into the marriage. Husband brought into the marriage a home he owned free and clear, a 50% interest in a mountain cabin owned free and clear, various mutual fund holdings, and a medical malpractice claim in process from injuries he sustained prior to the marriage.
During the marriage, Husband obtained a home equity loan and pulled 100% of the equity out of his home. He used the equity to purchase a large tract of land in Northern Arizona, and he put his wife’s name on the deed at the time the property was acquired. Early on in the marriage, Husband liquidated mutual funds which he owned before the marriage and used the proceeds to purchase the other 50% interest in the cabin. He then put Wife’s name on the deed to the cabin. Finally, Husband settled his medical malpractice case approximately two years into the marriage and used 100% of the settlement proceeds to purchase two large farms in northern Arizona. Title to the farm was taken in the names of both Husband and Wife.
At trial, Husband testified that he only put Wife’s name on the farms, the cabin and the other tract of land to provide for Wife in the event of his death in lieu of doing a will or a trust. Evidence was presented at trial to show that the medical malpractice case settlement proceeds (used to purchase the two farms) were intended to pay for Husband’s future medical care.
Following the trial, the judge issued a divorce decree which awarded the two farms to Husband but which ordered that the cabin and the other tract of land be divided equally between the parties. It seemed to be significant to the Court that, beyond being paid for with Husband’s separate property, the farms particularly were intended to provide for Husband’s future medical care. Although it is not always possible to divine from the written divorce decree the judge’s thought processes in arriving at his decisions, the judge apparently did not believe it was fair that Wife should share in the farms (purchased with Husband’s medical malpractice case proceeds) when Wife would have no obligation to pay for Husband’s future medical care. This may have been the one distinction which led to different treatment by the judge of the farms as compared to the cabin and the other large parcel.
V. Conclusion
Unequal division of jointly titled real estate in Arizona divorces remains a rarity. Nevertheless, in cases where one spouse has contributed significant separate property to the jointly held real estate, where the marriage is of relatively short duration, and where other facts indicate that an equal division of the real estate would not be fair to the separate property-contributing spouse, Arizona judges may order an unequal but equitable division of the jointly held real estate.
