2022 Amendments to Title 25

Senate Bill 1383 was signed by the governor on June 14, 2022 and becomes effective on September 24, 2022 (90 days after the legislature adjourned sine dine). The bill amends several sections of chapter 3, adds new section 25-314.01 and repeals and replaces section 25-316. All of the substantive changes are detailed below.

Most important changes for practitioners

If you’re short on time, here are the most important changes you need to know about:

  • New procedure for cancelling a legal separation: If the parties are legally separated and later reconcile, there is a new process for terminating the legal separation decree. Any property awarded to either spouse in the legal separation decree or acquired during the period of legal separation remains separate, unless stated otherwise. You also have to address what happens to property payments and support payments that were ordered in the legal separation decree but haven’t been fulfilled.
  • Formal adoption of summary consent decree process: The summary consent decree process that was being trialed in Maricopa County is now codified in § 25-314.01. But there are some changes—the filing fee is now 50% of the combined petition and response fee, and the decree can be submitted to the court earlier than 60 days (but cannot be entered until after 60 days).
  • Minor changes to temporary orders: Provisions regarding temporary orders have been moved to § 25-316. “Physical or emotional” harm has been deleted as a requirement for exclusive use of property, and there is now specific authority for exclusive use and possession of other property, not just the marital residence. The definition of “liquid assets” now includes cryptocurrency and “nonretirement funds in financial institutions.”
  • Spousal maintenance guidelines: The new § 25-319 authorizes the supreme court to establish spousal maintenance guidelines, and limits the court to awarding maintenance “only for a period of time and in an amount necessary to enable the receiving spouse to become self-sufficient.” The court may deviate from the guidelines if the application is inappropriate or unjust (like child support). The actual guidelines haven’t been created yet.

If a statute has been amended but isn’t mentioned below, it’s because the changes are only cosmetic—e.g., changing custody to legal decision-making and parenting time, or adding annulment to divorce and legal separation.

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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.).

Ertl v. Ertl

  • Can an exchange of emails be an enforceable agreement in family court?

Facts and Procedural History

The parties’ attorneys exchanged emails about a possible settlement. After extended communication, Husband’s attorney emailed Wife’s attorney that Husband and Wife “were in full and final agreement” regarding their divorce.

When Husband’s attorney presented the written agreement to Wife’s attorney, Wife’s attorney withdrew from the case. Wife refused to sign the written agreement unless Husband paid her an additional $250,000.

The trial court found that a binding agreement existed and enforced the agreement contained in the exchange of emails between the attorneys.

Sue Ertl appealed the family court’s order finding that she entered a valid separation agreement when the parties’ respective attorneys agreed to the terms through signed emails.

Ruling

Arizona recognizes that parties may enter into a binding separation agreement disposing of their property. See A.R.S. § 25–317. An enforceable agreement requires “an offer, acceptance, consideration, a sufficiently specific statement of the parties’ obligations, and mutual assent.” Buckholtz v. Buckholtz, 246 Ariz. 126 (App. 2019).

These agreements are valid under Rule 69 of the Arizona Rules of Family Law Procedure if they are “in writing and signed by the parties personally or their counsel on the party’s behalf.” Under § 44-7007, a record and signature in electronic form “cannot be denied legal effect,” and applies to any transaction relating to government affairs. Signed email communications involving court proceedings involve the judicial branch and are therefore considered “in writing” under Rule 69.

Parties and their attorneys should be cautious in discussing settlement over email. An agreement does not have to be physically signed to be binding. It may be wise to include a disclaimer in your email footer that “this email is for discussion purposes only and does not constitute a signed written agreement for purposes of Rule 69.”

Ertl v. Ertl, 502 P.3d 466 (App. 2021).

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