Category: Community Property

Prescott v. Prescott (mem.)

  • When is the trial court required to conduct a fairness hearing when one party challenges the enforceability of a settlement agreement?

Facts and Procedural History

The parties signed a settlement agreement in mediation dividing their community assets, including Husband’s business. The agreement did not assign a value to any of the assets, other than the estimate value of a commercial property. Wife waived her right to receive spousal maintenance in the agreement.

After Husband lodged the agreement, Wife filed a motion asking the trial court to determine the enforceability of the agreement, arguing that the court had an independent obligation to determine if the agreement was fair. The court denied Wife’s request for hearing, finding that the agreement complied with Rule 69 and that Wife failed to show any defect in the agreement.

Ruling

Courts are not required to conduct a fairness hearing if it is possible to determine from the agreement itself or from the record that the agreement is not unfair to either party. Hutki v. Hutki, 244 Ariz. 39 (App. 2018). However, the court must hold a hearing when there are “plainly disputed facts on the question of the fairness of the agreement, and the court was presented [with] no evidence as to the extent of the community assets.” Sharp v. Sharp, 179 Ariz. 205 (App. 1994).

In this case, the court was required to conduct a fairness hearing because the agreement did not state the value of the business, and the value was not available anywhere else in the record. The record also indicated a significant financial disparity between the parties, which was enough for Wife to be able to challenge the fairness of the spousal maintenance waiver.

The parties’ pleadings challenging the agreement contained “plainly disputed” explanations for the business valuation report and resulting allocation, therefore the court had to weigh positions and determine credibility to reach the conclusion that the agreement was not so unfair as to reject it.

Prescott v. Prescott, 1 CA-CV 20-0393 FC (App. Apr. 7, 2022) (mem.).

Sowards v. Sowards (mem.)

  • Is a structured settlement agreement for one spouse’s personal injury award a valid and binding postnuptial agreement?
  • Do the undisputed allegations in the parties’ initial pleadings constitute a binding agreement?
  • Is it an abuse of discretion if the trial court fails to account for one spouse’s violation of temporary orders in its final decree?

Facts and Procedural History

During the marriage, Husband and Wife recovered $6 million in damages in an action arising from Husband’s pacemaker surgery. They worked with a financial advisor to create a structured settlement agreement for the award. Both parties signed the settlement agreement, which provided for large monthly and annual payments, payments to Wife in the event of Husband’s death, and payments to beneficiaries in the event of Wife’s death.

Wife petitioned for legal separation in 2019 and alleged in her petition that neither party was entitled to spousal maintenance. Husband admitted the allegation in his response. However, shortly thereafter, Wife filed a motion for temporary orders requesting spousal maintenance which was granted on a temporary basis.

At trial, the court ruled that approximately $2 million in damages for Husband’s physical injuries was his separate property, but the substantial award for punitive damages was subject to the parties’ contractual agreement, “which takes these payments out of the community property realm.” The trial court also ruled that the parties had created a binding agreement through their pleadings that neither party was entitled to spousal maintenance.

Ruling

Spouses are free to contract for changes to their community property rights through a postnuptial agreement. The agreement must be free from any taint of fraud, coercion or undue influence, it must be fair and equitable, and each spouse must have acted with full knowledge of the property involved and their rights therein. In re Harber’s Estate, 104 Ariz. 79 (1969). Arizona law does not require a postnuptial agreement to be formed in anticipation of separation or divorce. See Austin v. Austin, 237 Ariz. 201, 206-07 (App. 2015) (“A postnuptial agreement is defined as ‘[a]n agreement entered into during marriage to define each spouse’s property rights in the event of death or divorce.'” (citation omitted) (emphasis added)).

The court of appeals affirmed the trial court’s determination that the structured settlement agreement and a valid and binding postnuptial agreement. Wife did not claim that she signed the agreement as a result of fraud or mistake; the trial record confirmed that Wife had an adequate understanding of the agreement and its effect on her property.

The court of appeals also rejected the idea that the undisputed allegations in the parties’ pleadings consituted a binding agreement, but noted that Wife could have and should have amended her petition. This is an interesting decision in light of Rule 24(b)(6), which states that “the filing of a response has the effect of placing at issue any matter in the petition not specifically admitted.”

Finally, the court of appeals held that the trial court should have addressed Wife’s claim that Husband failed to comply with the temporary orders. Although temporary orders terminate and become unenforceable upon the entry of a decree, the court of appeals remanded the issue to permit the court to “account for the value of any noncompliance with the temporary orders and make an equitable adjustment if needed.”

Sowards v. Sowards, 1 CA-CV 21-0098 FC, 2022 WL 678530 (App. Mar. 8, 2022) (mem.).

Baum v. Baum

  • Is a spouse entitled to reimbursement when they use separate funds to pay community obligations?

Facts and Procedural History

This case involves a lot of complicated financial transactions about corporate stock. However, this case is mainly cited for the proposition that a spouse is not entitled to reimbursement when they use separate funds to pay community obligations.

Wife challenged the trial court ruling because the court denied her request for reimbursement of separate funds used for community expenses. The court denied her request, finding that the use of the parties’ separate funds was not traceable.

Wife cited Ivancovich v. Ivancovich, which approved a trial court order reimbursing one party for the expenditure of separate funds on community obligations. 24 Ariz. 592, 540 P.2d 718 (1975).

Ruling

The court of appeals distinguished Ivancovich from the situation in Baum. In Ivancovich, the wife was forced to use her separate funds to pay community expenses because her husband, who had sufficient community property, refused to do so. In this case, both parties voluntarily used their separate funds to pay community expenses.

When the expenditure of separate funds toward community expenses is voluntary, a spouse is entitled to reimbursement only if there is an agreement to that effect. “To rule otherwise would be to require all married persons to keep detailed accounts of all the money they spent during the marriage and of all community expenses.”

Baum v. Baum, 120 Ariz. 140, 584 P.2d 604 (1978).

Link to Opinion

Barr v. Barr (mem.)

Barr v. Barr, No. 1 CA-CV 20-0701 FC, 2022 WL ______ (Ariz. App. Feb 3. 2022) (mem.).

Facts and Procedural History

Elizabeth and Dennis Barr were married in 1983. In 1997, Dennis started working for The Kroger Company and continued working there throughout the marriage. He was still working there when Elizabeth filed for divorce in September 2018.

In July 2019, the parties entered into a Rule 69 agreement that resolved all issues, including the division of Dennis’s retirement accounts with Kroger. However, before any settlement documents were submitted to the court, Kroger offered Dennis the choice of either an early retirement package or a severance package. Dennis accepted the severance package which included severance pay, a lump sum payment for COBRA premiums, and payment for unused vacation. By accepting the severance package, Dennis forfeited unvested stock options that he had agreed to split with Elizabeth in the Rule 69 agreement.

Elizabeth moved the trial court to characterize the severance package as community property and make her whole for the loss of the unvested stock options. The court denied her request and she appealed.

Ruling

Elizabeth argued that her case was analogous to Bowser v. Nguyen, where the court held that a severance package paid after the community ended was still community property. 249 Ariz. 454 (App. 2020). But the court of appeals distinguished Bowser because in that case, the employment contract that included the severance package was signed prior to marriage, but performance under contract only occurred during the (short) marriage—it was therefore “acquired” during the marriage. In this case, there was nothing in the record to indicate that Dennis had any right to the severance package before Kroger offered it to him after the community ended.

[This case misstates the facts of Bowser. In Bowser, the husband signed the employment contract prior to marriage, but only worked at the company during the marriage. The court in Barr incorrectly says that the contract was formed during the marriage.]

The court also distinguished Sebestyen v. Sebestyen, where the court held that a disability pension constituted deferred compensation that had been earned during the marriage. 250 Ariz. 537 (App. 2021). In this case, there was no indication that Dennis’s severance package was deferred compensation because it was not offered to Dennis until after the community ended.

Although it determined that the severance package was separate property, the court held that Elizabeth may have a right to the unvested stock options that were forfeited when Dennis accepted the severance package. Citing Brebaugh v. Deane, the court of appeals directed the trial court to determine on remand whether the unvested options were intended to compensate Dennis for work performed during the marriage, or whether they were intended to incentivize future work. 211 Ariz. 95 (App. 2005). If the former, Elizabeth should receive half of their value.

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NYT: Divorcing Crypto Couples

This New York Times article highlights the divorce of Francis DeSouza, a tech entrepreneur that lost about 500 bitcoins in the Mt. Gox hack in 2014. The trial court found that Francis breached his fiduciary duty to his wife by failing to disclose how he obtained the bitcoins (using proxies), where the coins were being held (Mt. Gox), and that most of the coins were stolen in the 2014 hack.

Francis only disclosed that the coins were missing after the final divorce judgment in 2017. When his wife asked him to divide the coins as provided in the decree, he admitted that he only had a measly 613 bitcoins still in his possession. In a post-decree hearing, the wife’s expert testified that “only an idiot would leave his Bitcoins on Mt. Gox.” Ultimately, Francis was ordered to transfer 555 of the remaining bitcoins to his wife.

At the time Francis purchased the 500 bitcoins in 2013, he paid $45,000. At today’s price, those same 500 coins are worth over $21 million.

You can read the full story in the court of appeals opinion from the DeSouza’s divorce case.