Community Property Must Be Divided in Divorce
Key issues regarding community property, businesses, and sole and separate property from Larchick v. Pollock, — P.3d (App. 2021)
- Community PropertyThis is property that belongs equally to both spouses. It includes any property, asset, or liability either party acquires during the marriage with the exception of property acquired by gift or inheritance. Parties can opt out of community property laws with a prenuptial…Read more about Community Property must be divided at the time of the divorce. The Court cannot end the marriage and divide property at a later date.
- The increase in value of a sole and separate asset during the marriage could be community property, if a spouse’s labor during the marriage contributed to the value being increased.
- Experts are not required to consider all possible methods. The key ConsiderationWhat a party is required to give up under the terms of a contract. Both sides must have consideration in order for a contract to be valid and enforceable. For example, A and B agree that A will walk B’s dog for $10. A’s consideration is the $10 that A is giving; B’s consideration…Read more about Consideration is whether their methodology can assist the judge in determining the question before the court (in this case, the increase in the value of the business).
- An admission in a pretrial statement is AdmissibleEvidence the judge allows to be presented in court because it the requirements of the rule of procedure. Generally, to be admissible, evidence must have been timely disclosed to the opposing party, prepared as an exhibit and submitted to the Court ahead of time and by the Court's…Read more about Admissible evidence.
- When an asset is purchased during the marriage, and the purchasing spouse claims the asset is Sole and Separate PropertyProperty that belongs 100% to one spouse and is not part of the community property. Most commonly, this is property the spouse brought into the marriage.Read more about Sole and Separate Property, the burden is on the purchasing spouse to show that they purchased the property with sole and separate funds.
- It does not matter who subpoenaed a witness; if they are present, either PartyAn individual, entity, or the state that either brings the lawsuit or is required to respond to the lawsuit. See ARFLP Rule 3(f).Read more about Party may call them to testify.
The Legal Questions in Larchick v. Pollock
- Can a court divorce the parties and then divide community property at a later date?
- Where an expert writes in his report that it is not intended to be admissible at TrialA court hearing in which evidence and testimony are taken, and the Court makes a final determination of the issues raised in a petition. Trials and evidentiary hearings are somewhat synonymous, but the difference is one of scope: Evidentiary hearings are more limited in scope…Read more about Trial, can that report be admitted at trial?
- Can a party call a witness who is present in the courtroom if they did not SubpoenaThis is a discovery tool where a party can demand a person to appear as a witness or hand over documents. A subpoena is a form that party fills out and takes to the Court where it will be stamped as a court order through the recipient of the subpoena or the other party may…Read more about Subpoena that witness?
- When the PartyAn individual, entity, or the state that either brings the lawsuit or is required to respond to the lawsuit. See ARFLP Rule 3(f).Read more about Party with the burden of proving an increase in the value of the business fails to provide any evidence to support their claim, can the court dismiss their claim even though the other party admitted in their pretrial statement that the business increased in value?
- What is the standard for showing that an asset purchased with sole and separate funds during the marriage is a sole and separate asset?
Legal Background: Expert Testimony
Expert TestimonyThe sworn statements of a witness made at a trial or deposition.Read more about Testimony is governed by Rule 702 of the Arizona Rules of Evidence. This rule mirrors the federal rule, also numbered 702, in the Federal Rules of Evidence. To qualify as an expert, a witness must have specialized knowledge that can assist the trier of fact (the judge or jury) in determining an issue. In most cases, the Trier of factThe person or group who determines the outcome of a case. In a criminal or civil case, this is usually a jury. In a family law proceeding, it is the judge. They are called the "trier of fact" because the family law judge listens to the evidence and determines who should prevail…Read more about Trier of fact refers to a jury. But not in Arizona family courts. There are no juries there. Rather, judges make all the decisions.
If one side calls an expert witness, the other party may challenge their status as an expert witness by asking them a series of questions to see if they “qualify” as an expert. This process is known as voir dire (French for to speak the truth).
Legal Background: The Marital Community’s Interest in the Appreciation of a Sole and Separate Asset during a Marriage
The term sole and separate asset refers to property that one spouse brings into the marriage. That asset remains their property. However, if the asset appreciates as the result of work one performs during the marriage (known as “Marital laborA full definition is available in the State 48 glossary.Read more about Marital labor”), that increase could be community property. That is because anything that is the product of marital labor is considered to be community property; i.e., if you work for it during the marriage, it becomes community property). The gain is generally limited, though, to just the increase in the value of a sole and separate and asset.
Larchick v. Pollock Factual Background
The parties had only been married 10 months when Wife served Husband with PetitionThis is a court document that someone files to start a case.Read more about Petition for Legal SeparationA formal legal process that terminates the marital community, divides all the community property and liabilities, and determines custody if children are involved. Legal separation is almost identical to a divorce in every way except one: You are still married at the end of it.…Read more about Legal Separation that she later converted to a divorce.
During the marriage, Wife created an LLC and purchased a building to run the operations of the business. At TrialA court hearing in which evidence and testimony are taken, and the Court makes a final determination of the issues raised in a petition. Trials and evidentiary hearings are somewhat synonymous, but the difference is one of scope: Evidentiary hearings are more limited in scope…Read more about Trial, Husband claimed a community interest in both the increased value of the business and the office. Wife objected. Trial court entered orders dividing most of the property and dissolving marriage but did not address the Business or the Office. Instead, the court scheduled a second trial (now post-divorce) regarding that matter.
Before the second trial, Husband timely disclosed a “calculation of value” report created by his expert that claimed the Business increased in value $546,041 during the marriage, but he wrote that his valuation. Wife retained an expert claiming it was only a $93,000 value. Wife included this information in her Pretrial Statement.
Husband’s expert wrote that his report was essentially insufficient for trial. Mother’s counsel asked to qualify him and pointed this out. The trial court ruled his testimony was inadmissible because “he failed to ‘follow all possible methods that an expert should be using, all reliable methodology.’”
After excluding Husband’s witness, Husband tried calling Mother’s expert witness. Wife objected because she, not Husband, has subpoenaed her witness. Court sustained the objection.
Wife then asked for a directed verdict (i.e., she is asking the Court to rule that Husband failed to prove his case; therefore, she wins without having to present her evidence). The Court granted her directed verdict and granted her attorney’s fees, even though it found she made substantially more than Husband.
THE COURT OF APPEALS RULING
- The family court must divide the property at the time it divorces the parties. Under A.R.S.A.R.S. is an abbreviation for Arizona Revised Statutes. It is most commonly used as a reference. For example, if one types in, ARS 25-403 into Google or Bing, they'll likely be returned with links to Arizona's statute on the best interests factors and articles, web sites, and…Read more about A.R.S. §25-318, community property must be divided at the same time the parties divorce. The trial court cannot divorce the parties and hold onto divide property at a later as the trial court did here.
- The Court, not witnesses, determines what is AdmissibleEvidence the judge allows to be presented in court because it the requirements of the rule of procedure. Generally, to be admissible, evidence must have been timely disclosed to the opposing party, prepared as an exhibit and submitted to the Court ahead of time and by the Court's…Read more about Admissible at trial. The trial court improperly deferred to Father’s expert’s understanding of admissible evidence. The Standard for qualifying a witness as an expert is if they have specialized knowledge that will help the trier of fact understand the evidence or determine a fact At IssueSomething the Court must decide, e.g., “At issue is whether Mother violated the Preliminary Injunction …" is the same as saying “The Court must decide whether Mother violated the Preliminary Injunction.”Read more about At Issue. While 702 is a gatekeeping rule, it does not take the place of the adversarial system. Further, nothing in 702 requires experts to consider all possible methods. Father’s expert’s methods might have been vulnerable on Cross-examinationWhen a witness is questioned on the stand, under oath, by the party who did not call the witness. Cross-examination almost always follows a direct-examination.Read more about Cross-examination, but it was not rendered inadmissible simply because the expert called its admissibility into question. And just because his method is short of the gold standard does not mean it is inadmissible. “To the extent the family court excluded Father’s expert’s TestimonyThe sworn statements of a witness made at a trial or deposition.Read more about Testimony because he ‘did not follow all possible methods,’” it erred.
- “A party may call to the witness stand any witness properly noticed and present.” It does not matter who subpoenaed the witness; if they are present and willing to testify, either party may call them to the stand.
- Because Wife’s own expert admitted the business increased in value by $93,000.00 during the marriage, there was admissible evidence of increase in value. Wife cited her expert’s OpinionThis is a ruling by the Court of Appeals that resolves the case and creates case law that other courts must follow in similar circumstances.Read more about Opinion in her pretrial statement. This is admissible as a statement by an opposing party under Arizona Rules of Evidence Rule 801(d)(2)(D).
- When a spouse claims that something purchased during the marriage is their sole and separate property, they have the burden of proving that the purchase was made with their sole and separate funds. “When a claim is made that property purchased during the existence of a marriage is the separate property of one of the spouses, the fund with which such property was acquired must be clearly shown to have been the separate property of such spouse.” Wife did not prove the source of the funds to purchase the office. Although she asserted she paid them with sole and separate funds, she did not provide the source of those funds. The evidence, therefore, does not support the trial court’s finding.
RELATED CASES
Dole v. Blair, 248 Ariz. 629 (App. 2020). The parties owned a marital residence in which Mother lived, and a rental property that Husband moved into when the parties separated. Citing the children’s best interests, the trial judge (the same judge as the one in Larchick) ordered the parties to hold the homes as Joint TenantsCoinciding interest for two or more individuals that have holdings in personal, intellectual or real property. This essentially allows two or more individuals to own the property as though they were one individual. Graham v. Allen, 11 Ariz. App. 207, 208 (1970). Though joint…Read more about Joint Tenants with right of survivorship for six years until the youngest child turned 18. The Court of AppealsThis is the Court that hears appeals and special actions from the decisions made by the superior court. A panel of three judges reviews each appeal and issues a ruling. The Arizona Supreme Court is the only state court higher than the Court of Appeals.Read more about Court of Appeals ruled this was error. A.R.S § 25-318 requires property to be divided at the time the marriage is dissolved. Under Koelsch v. Koelsch, 148 Ariz. 176 (1986), each party is to receive an immediate, present, and vested separate property interest in the property awarded to them at the time of the divorce.
Benson v. Hunter, 23 Ariz. 132 (1921). All property acquired during the marriage and all business conducted during the marriage is presumed to be community property, absent evidence to the contrary.
Brebaugh v. Deane, 211 Ariz. 95 (App. 2005). While better known as the leading case in Arizona on how Unvested Stock OptionsStocks that one spouse has been promised but does not yet have full ownership over, according to the vesting schedule set by the spouse’s employer. These will be partially community property, partially sole and separate property.Read more about Unvested Stock Options are divided in a divorce, this case sets forth that the standard for rebutting the PresumptionA legal standard where the person who holds the presumption has the advantage in a case. When a presumption is established, the burden is on the other party to produce enough evidence to overcome the presumption. See also Rebuttable Presumption.Read more about Presumption is Clear and Convincing EvidenceCertain issues in family law require clear and convincing evidence. Clear and convincing evidence is generally defined as evidence that is highly probable or reasonably certain. Kent K. v. Bobby M., 210 Ariz. 279 (2005). This is a step up from the preponderance of evidence that…Read more about Clear and Convincing Evidence.
Gordon v. Industrial Comm’n, 533 P.2d 1194 (Ariz. App. 1975). “The purpose of a subpoena is to obtain the presence of a witness at the hearing. Once that witness is present, barring any sort of privilege, generally, either party may call him to testify.”
Garcia v. Indus. Comm’n, 511 P.2d 687 (Ariz. App. 1973). A witness can testify without being subpoenaed.
