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 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 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 admissible evidence.
- When an asset is purchased during the marriage, and the purchasing spouse claims the asset is 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 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 trial, can that report be admitted at trial?
- Can a party call a witness who is present in the courtroom if they did not subpoena that witness?
- When the 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 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 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 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 Petition for 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 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. §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 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 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-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 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 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 tenants with right of survivorship for six years until the youngest child turned 18. The 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 options are divided in a divorce, this case sets forth that the standard for rebutting the presumption is 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.
