Interest on a Loan Between Spouses in Arizona

We want to talk to you about the accrual of interest on loans between spouses in Arizona. The Arizona Court of Appeals ruled on the subject of sole and separate property contributed to marital property and how that property will be distributed in the case of Malecky v. Malecky.

Wife Loans Money to Husband to Buy a House

Shortly after the parties were married in 1978, Husband purchased a residence for which Wife contributed a sum of money from her separate funds. However, the title was taken only in Husband’s name.

Then, in 1979, the parties purchased a business franchise. Husband partially repaid the loan for the business soon after.

Wife’s Loan to Husband to Buy a Business Does Not Create a Community Property Interest

During the divorce proceedings, evidence showed that Husband executed the Deed in his name only for the residence, but Wife testified that she believed that she had a community interest in the home because of the contribution of her sole and separate property.

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The trial court construed the sum she granted as a loan from wife to husband.

Therefore, they ruled the residence to be Husband’s sole and separate property and gave Wife a lien in the sum of the amount she contributed from her sole and separate property.

The court also ordered the interest to accrue at the legal rate from the date of the decree but declined to award interest before that date.

In regards to the business franchise purchased by the parties, the court found the store to be community property and that Husband did not intend his partial repayment of the loan as a gift to the community.

They awarded the franchise to Husband and valued Wife’s share at half the value of the business minus half of what Husband invested in the loan, which he would be entitled to purchase from her.

Equity Justifies the Awarded of Interest on a Loan Between Spouses

Interest Accrues on a Loan Between Spouses in Arizona.

The Impact of an Investment Versus a Loan on Community Property Rights

Wife appealed these decisions to the Arizona Court of Appeals arguing that her investment in the residential property was a liquidated claim and that she had a right under the law to receive prejudgment interest on that loan.

The appeals court agreed with her, adding that when a party possesses and makes use of money belonging to another, equity requires that interest is paid on that sum.

Wife also maintained that she believed she had a community property interest in the home and did not consider her contribution to be a loan as she did not ask for repayment.

Until the trial court ruled that the residence was Husband’s separate property, she believed that she would receive a proportionate benefit from the appreciation of the property.

Retroactive Application of Interest on a Loan Between Spouses in Arizona

The appeals court held that Husband would keep ownership of the property, but the interest on her contribution would begin from the date the check was issued at the statutory rate.

The second issue she raised was the lien awarded to Husband for their business.

He argued that the funds he contributed were traceable as his, so the trial court’s judgment should be affirmed.

Gifts of Separate Property Versus Loans to a Spouse

However, the appeals court stated that, in Arizona, when one spouse pays for real property that is in both spouses’ names, the presumption is that it was a gift to the community unless there is an express agreement that the spouse will be entitled to reimbursement.

In this case, there was no evidence of such an agreement and insufficient evidence to negate the presumption of a gift.

Accordingly, the appeals court reversed the trial court’s decision to award Husband a separate property lien for the amount he invested, giving Wife a full half of the value of the business.

It is important when purchasing property in a marriage to have a mutual understanding as to how the property will be deeded, whether as a separate or a community asset.

Also, if a spouse invests in marital property, it must be clear if it is a gift to the community or if they expect reimbursement for the investment.

This case illustrates how unclear intentions surrounding these decisions can affect the outcome of the disbursement of property in divorce proceedings.

If you need information about sole and separate property divorce in Arizona, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property attorneys have decades of combined experience successfully representing clients in divorce cases in Arizona.

Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.

Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your Arizona community property case around today.

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Arizona Community Property Laws | Hildebrand Law, PC