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Transmuting Separate Into Community Property in AZ | Hildebrand Law

Mon 8th Aug, 2016 Arizona Community Property Laws

In Arizona, when a spouse uses separate property to purchase property taken in the name of both spouses, it is presumed to be a gift. The intention of the couple also plays a significant role in the property division in Arizona.

But, what happens when a couple’s intentions are misguided by misinformation about how community property laws work in Arizona? In Noble v. Noble 546 P.2d 358 (1976), the Court of Appeals addressed this issue.

Facts of the Case

Mrs. Noble and Mr. Noble married in 1956. Mrs. Noble filed for the dissolution of the marriage in 1963. She had a considerable amount of separate property at the time of the marriage. This included income from a trust fund. The couple lived solely on that income until 1963. At that time, the husband got a job.

Mr. Noble and Mrs. Noble kept joint bank accounts in several different states and in Denmark. In 1958 they purchased “Tangeaard”, a manor farm in Denmark, with wife’s money. In 1961 they purchased the “Bend Ranch” property in Arizona, also with wife’s funds.

Mrs. Noble appeals from the trial court’s order dividing these two properties and the income from the ranch. Husband appeals from the trial court’s determination that a painting, the “Boucher painting”, was the wife’s sole and separate property.

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Tangeaard

The trial court ruled that when the couple bought Tangeaard, it was community property. It ruled that it would remain community property throughout the divorce. However, the court agreed that it was subject to the wife’s separate property lien in the amount of $50,000.00. This amount equals the purchase price of $35,000.00 and capital improvements of $15,000.00, paid for with wife’s separate funds.

The wife argued that the court did not have the authority to determine an owner to the title of the land in Denmark. The Court of Appeals agreed with this statement of law. However, it said that the court was not determining the title, but only their individual interests in the property.

Next, Mrs. Noble argued that the property must be her separate property since it was purchased with her separate funds. In Arizona, the court does not presume an intention to gift if a spouse’s deposits are separate funds in a joint account.

However, the law presumes a gift if a spouse buys a property and puts both spouses’ names on it. The Court said that the transmutation of property status was a question of intent. Under Arizona law, a couple can, by their intent, transmute the character of separate property to community property.

The Court then looked at the record for evidence of the intent of the wife and husband. The evidence suggested that they intended to hold their property in accordance with community property law. However, they, unfortunately, misunderstood the law.

When they bought the house in Denmark, they believed that income from Mrs. Noble’s separate property was community property. They also thought that real property purchased during the marriage was community property.

In 1963, the husband learned that income from separate property is also separate property. At that time, he renounced all interest in the money the wife used to buy the Denmark property. However, the fact remained that when the couple bought the house, they intended it to be community property.

The trial court tried to give effect to these intentions in its ruling. It held that the house was community property, but subject to a lien for wife’s separate funds. The Court of Appeals agreed with this approach. It affirmed the ruling.

Bend Ranch

Transmuting of Separate Property Into Community Property in Arizona.

The Nobles also bought the Bend Ranch property after they had learned that the income from the wife’s separate property remained her separate property. They wanted the Bend Ranch to be community property so they didn’t use wife’s separate funds for the down payment. Instead, they borrowed the money from a life insurance policy owned by the wife prior to the marriage.

They thought this would make the purchase community property. They did not realize that this would also be separate property. However, it supports the conclusion that the husband and wife fully intended the Bend Ranch property to be community property.

The trial court ruled that the Bend Ranch property and the income from that property were community property. It proceeded to impose a lien in the wife’s favor on the property to repay the loan. The Court of Appeals, again, agreed with its reasoning.

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Boucher Painting

The wife bought the Boucher Painting with a check written from the joint bank account. The husband claimed that he had started working at that time. He had also added money to the joint bank account, which made all money within the account community property. The Court disagreed.

The wife did not transmute her separate funds just because they were in a joint account. This is especially true when a number of community funds from the husband’s earnings only amounted to $3,000 for the entire year.

The painting, purchased with her separate funds, is her separate property.

Disposition

Intention of Spouses Controls Transmuting of Separate Property Into Community Property in Arizona.

The Court of Appeals affirmed the trial court’s decision.

If you have questions about transmuting separate into community property in an Arizona divorce case, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have decades of combined experience successfully representing clients in community property disputes and family law cases.

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 or family law case around today.

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