Opinion
1 CA-CV 22-0180 FC
03-28-2023
In re the Matter of: BROOKE DILDAY, Plaintiff/Appellee/Cross-Appellant, v. SHAUN DILDAY, Respondent/Appellant/Cross-Appellee.
Berkshire Law Office, PLLC, Tempe By Keith Berkshire, Alexandra Sandlin Counsel for Petitioner/Appellee/Cross-Appellant Hoffman Legal, LLC, Phoenix By Amy Wilkins Hoffman, Jason M. Ceola Counsel for Respondent/Appellant/Cross-Appellee
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. FC2018-090140 The Honorable Rusty D. Crandell, Judge
Berkshire Law Office, PLLC, Tempe By Keith Berkshire, Alexandra Sandlin Counsel for Petitioner/Appellee/Cross-Appellant
Hoffman Legal, LLC, Phoenix By Amy Wilkins Hoffman, Jason M. Ceola Counsel for Respondent/Appellant/Cross-Appellee
Vice Chief Judge David B. Gass delivered the decision of the court, in which Presiding Judge Samuel A. Thumma and Judge Cynthia J. Bailey joined.
MEMORANDUM DECISION
GASS, Vice Chief Judge
¶1 Husband and wife appeal the superior court's order adopting a special master's ruling in this divorce proceeding. Though husband appealed and wife cross-appealed, given the issues, this decision begins by addressing wife's cross-appeal.
¶2 Wife cross-appeals two rulings: (1) the superior court's characterization of $750,000 of husband's settlement proceeds in an employment matter as his sole and separate property; and (2) the superior court's finding it lacked authority to order a sale of the marital residence. As discussed below, husband failed to prove by clear and convincing evidence the disputed $750,000 was his sole and separate property, and the superior court retained authority to order a sale of the marital residence.
¶3 Husband appeals the superior court's orders about:
(1) waste; (2) the division of personal community property; (3) spousal maintenance; and (4) attorney fees. As to husband's arguments about waste and the division of community property, sufficient evidence supports the orders he challenges. For spousal maintenance and attorney fees, our rulings on wife's cross-appeal require us to vacate those awards for the superior court to reconsider on remand.
¶4 We, thus, affirm in part, reverse in part, and remand for the superior court to: (1) divide the disputed $750,000 settlement proceeds equitably; (2) reconsider the appropriate spousal maintenance award, if any; (3) reconsider its equalization ruling to address the additional available resources; and (4) reconsider the appropriate attorney-fees award, if any.
FACTUAL AND PROCEDURAL HISTORY
¶5 This court views the facts in the light most favorable to upholding the superior court's ruling. See Lehn v. Al-Thanayyan, 246 Ariz. 277, 283, ¶ 14 (App. 2019).
¶6 Husband and wife married in 2002 and had a child in 2006. Wife petitioned for dissolution in 2018. The parties resolved most issues by agreement. The only issues on appeal relate to financial matters.
¶7 Following a 2019, two-day temporary orders hearing, the parties agreed to have the superior court appoint a special master to address disputed financial issues. In 2020, the special master held a two-day hearing. During the hearing, the special master heard testimony from husband, wife, and wife's forensic-accounting expert and considered numerous exhibits. The special master issued initial findings in April 2021 and two addenda in August 2021. Both parties objected to some of the special master's findings.
¶8 On September 17, 2021, and January 21, 2022, the superior court issued two orders adopting almost all the special master's findings. As a result, the superior court awarded wife a $726,542.55 equalization judgment against husband.
I. Settlement Proceeds
¶9 The disputed $750,000 settlement proceeds arise out of husband's work for his employer, Worldwide Express and its subsidiaries, including Phoenix Overnight (collectively Worldwide). Worldwide terminated husband's employment, and husband sued Worldwide before wife filed this dissolution matter. Husband then settled his lawsuit before the temporary orders hearing and received $1,250,000. At issue is the superior court's characterization of $750,000 of those settlement proceeds.
¶10 During the 2019 temporary orders hearing, the parties presented evidence on the disputed $750,000 to the superior court. Wife was not a party in husband's lawsuit against Worldwide and did not participate in negotiating or finalizing the settlement. Of the $750,000, the written settlement agreement attributed $500,000 to husband's claims for releases and covenants and $250,000 to "other claims" by husband. At the temporary orders hearing, husband argued those "other claims" included defamation, false light invasion of privacy, and wrongful discharge. Husband testified his attorney and Worldwide's attorneys came up with the allocation of the settlement proceeds and the settlement agreement's language. He offered no other explanation for the basis for the disputed $750,000.
¶11 In ruling on the evidence provided at the temporary orders hearing, the superior court found it would be "pure speculation" to order "some or all of [the disputed $750,000] to be community property without any evidence of which claims were valued at what amount." Citing that ruling, the special master later concluded the superior court had "implicitly determined that those funds represented the separate property of [h]usband . . . [and the special master] decline[d] the opportunity to modify that order."
¶12 In objecting to the special master's ruling, wife argued before the superior court the disputed $750,000 was community property and sought one-half as her share. She argued husband failed to meet his burden of proving by clear and convincing evidence the $750,000 was his sole and separate property. Husband argued it was his sole and separate property because the settlement agreement allocated a portion to husband's claims for defamation, false light invasion of privacy, and wrongful discharge. Without further analysis, the final decree characterized the disputed $750,000 as husband's sole and separate property.
II. Marital Residence
¶13 In September 2019, the parties entered an agreement on the record allowing husband to refinance the marital residence on the condition wife sign a warranty deed conveying the marital residence to husband as his sole and separate property. On the record, husband agreed not to encumber the marital residence further, not to transfer it to a third party, and to provide wife with information about the refinancing-including an accounting of how he spent any proceeds. The superior court approved the agreement as binding and then said husband could pay wife half of the value of the house "with the understanding that the other portion of it may be subject to liquidation . . . because the [superior court] may order the sale, even if [husband] refinances." In a December 2019 minute entry, the superior court acknowledged the agreement, summarized it, and stated: "The exact terms of the agreement(s) are as set forth on the record."
¶14 The parties later submitted a joint pretrial statement to the special master. In that statement, husband and wife agreed: "[Husband] paid [wife] $430,000 for her share of the marital residence during a refinance of said residence in December 2019. The [superior court] specifically retained jurisdiction over the residence for equalization payments that may be owed from [husband] to [wife]."
¶15 Even so, the superior court found it lacked authority to order husband to sell the marital residence to satisfy his $726,542.55 equalization obligation to wife and instead awarded wife an equalization judgment against husband for that amount.
III. Waste, Personal Property, Spousal Maintenance, and Attorney Fees
¶16 Relevant to husband's appeal, the superior court found husband engaged in waste, including: (1) $1,060,132 in unaccounted compensation (missing payroll); (2) $189,813 in payments to his girlfriend (M.H.); (3) $40,000 he withdrew from a Wells Fargo bank account; and (4) $252,090 in unidentified withdrawals from husband's Bank of America account. The superior court found the evidence insufficient to order husband's requested equalization payments for personal property in each party's possession. Husband challenges those findings. Husband ultimately seeks about a $600,000 reduction in the $726,542.55 equalization judgment, including about $80,000 for personal property awarded to wife, and $11,000 for Porsche payments discussed below.
¶17 The superior court awarded wife $3,500 per month in spousal maintenance for six years. The superior court also treated half of husband's post-petition lease payments on the Porsche as retroactive spousal maintenance. Husband objects to that classification and seeks an equalization adjustment for those payments. Finally, over husband's objection, the superior court awarded wife $125,000 in attorney fees (of the almost $180,000 she requested).
¶18 This court has jurisdiction over husband's timely appeal and wife's timely cross-appeal under article VI, section 9, of the Arizona Constitution, and A.R.S. §§ 12-120.21.A.1 and -2101.A.1.
ANALYSIS
I. Wife's Arguments
A. Characterization of the $750,000 in Settlement Proceeds
¶19 Wife argues the disputed $750,000 was presumptively community property and husband failed to prove otherwise. Husband maintains the $750,000 was for his personal injury claims, making it presumptively his sole and separate property. The outcome turns on whether husband proved the disputed $750,000 was for personal injury claims.
¶20 All property acquired by a spouse during the marriage is presumptively community property. A.R.S. § 25-211.A. "The spouse seeking to overcome a presumption of asset characterization has the burden of establishing the character of the property by clear and convincing evidence." Hefner v. Hefner, 248 Ariz. 54, 58, ¶ 9 (App. 2019) (citation omitted). A party has not rebutted the community property presumption if, after considering the evidence, the superior court cannot resolve the property's characterization. Porter v. Porter, 67 Ariz. 273, 279 (1948).
¶21 Property acquired after service of a petition for dissolution is sole and separate property. A.R.S. § 25-211.A.2. But "service of a petition for dissolution of marriage . . . does not . . . [a]lter the status of preexisting community property." A.R.S. § 25-211.B.1. As a result, payments received post-petition are not necessarily separate property. DeFrancesco v. DeFrancesco, 248 Ariz. 23, 24, ¶ 5 (App. 2019). For example, a contractual right earned during marriage but paid after dissolution is community property. See id. at 24, ¶¶ 5-8 (categorizing as community property a pension and contingent fee earned during marriage but categorizing as separate property a year-end bonus received after community ended). Importantly, wife was not bound by the terms of husband's settlement agreement with Worldwide, or the purported allocation of the proceeds in that agreement. See Farmers Ins. Co. of Ariz. v. Vagnozzi, 138 Ariz. 443, 448 (1983); see also United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 120 (1987).
¶22 Applying those principles here, husband's claims resulting in the $750,000 settlement accrued during the marriage even though husband settled them after the marital community terminated. Husband sued before wife filed for dissolution, seeking damages for injuries that occurred during the marriage. And the fact husband settled that litigation after service of wife's petition for dissolution does not, somehow, convert that community asset into his sole and separate property. To hold otherwise would lead to gamesmanship-encouraging parties to file for dissolution before settling premarital claims merely to avoid the presumption of community property.
¶23 Here, the superior court did not expressly address the presumption. By concluding the $750,000 was not community property, the superior court found the $750,000 was presumptively husband's sole and separate property, subject to wife rebutting that presumption. That was error, given the property presumptively was community property, meaning husband, not wife, had the burden of proof to overcome the community property presumption. See Hefner, 248 Ariz. at 58, ¶ 9.
¶24 The superior court found neither husband nor wife made an adequate factual showing to establish the nature of the $750,000. Put differently, neither husband nor wife presented sufficient evidence to rebut the presumptive nature of the $750,000. As discussed, under the applicable law, presumptively, the $750,000 was community property, which becomes dispositive because neither husband nor wife factually rebutted the presumption. See A.R.S. § 25-211.A; Porter, 67 Ariz. at 279.
¶25 Husband argues the disputed settlement proceeds are akin to recovery for injuries to his personal well-being, making them separate property. See Jurek v. Jurek, 124 Ariz. 596, 598 (1980). Husband argues defamation and false light invasion of privacy are personal injury torts because they injure the mind, which is part of one's separate body, through mental and emotional harm. Id. In Jurek, the Arizona Supreme Court considered a settlement for husband's several personal physical injury, which he sustained two days after he filed for dissolution. Id. at 596. But, here, husband's settlement claims arose for injuries he incurred during the marriage. And unlike the claims in Jurek, husband's claims were resolved before entry of the decree in a written settlement agreement. And finally, Jurek did not address purported allocation of proceeds in a settlement agreement or the burden of proof issue.
¶26 Because the disputed $750,000 was presumptively community property and husband did not meet his burden of proving otherwise, we remand for the superior court to divide it equitably.
B. Authority to Order Husband to Sell the Marital Residence
¶27 Wife argues the superior court had authority to order the sale based on the parties' binding agreement on the record, husband's positions at trial, and the superior court's own statements on the record. Husband argues he refinanced and retitled the marital residence as his sole and separate property, depriving the superior court of any authority to order husband to sell the marital residence.
¶28 Under Rule 69(a)(1)-(2), Arizona Rules of Family Law Procedure (Rule), an agreement is valid and binding on the parties if they, or their lawyers on their behalf, sign the written agreement or, if "the agreement's terms are stated on the record before a judge."
¶29 During the September 2019 hearing, the parties stated their agreement on the record and the superior court approved it. Once the superior court approved the agreement, it was "binding on the court." Rule 69(b). During that hearing, the superior court made clear the marital residence was still "subject to liquidation . . . because the [superior court] may order the sale, even if [husband] refinances." The minute entry from the December 2019 hearing affirmed the agreement and said, "The exact terms of the agreement(s) are as set forth on the record."
¶30 In their pretrial statement to the special master, the parties repeated the superior court "specifically retained jurisdiction over the residence for equalization payments that may be owed." See Rule 76(c)(11). The above shows the parties' positions through trial tracked the Rule 69 agreement and the joint pretrial statement.
¶31 Husband is bound by his earlier Rule 69 agreement and his statements in the joint pretrial statement and cannot now claim to the contrary. Because the Rule 69 agreement and the pretrial statement are binding, the marital residence's change from being titled in husband's and wife's names to husband's name is irrelevant to whether the property remains community property. The superior court has broad discretion to "order a sale of community property when it will facilitate the equitable division of the property." Lee v. Lee, 133 Ariz. 118, 121 (App. 1982). The superior court recognized that discretion before the parties entered the refinance agreement, and it retained that discretion after the refinance.
¶32 We, thus, remand for the superior court to address its equalization ruling with the understanding the marital residence remains community property subject to its control.
II. Husband's Arguments A. Waste
¶33 Husband challenges the special master's findings of waste in four regards: (1) missing payroll; (2) payments to M.H.; (3) $40,000 in unidentified expenses; and (4) Bank of America withdrawals. This court reviews a finding of community waste for an abuse of discretion. Gutierrez v. Gutierrez, 193 Ariz. 343, 346, ¶ 5 (App. 1998).
¶34 When dissolving a marriage, the superior court may consider "all actual damages and judgments from . . . excessive or abnormal expenditures, destruction, concealment or fraudulent disposition of . . . property held in common." A.R.S. § 25-318.C. The spouse alleging "abnormal or excessive expenditures by the other spouse" must make an initial showing of waste. Gutierrez, 193 Ariz. at 346, ¶ 7. If the alleging spouse makes such a showing, the burden then falls on the other spouse to show the expenditures benefited the community. Id. at 346-47, ¶¶ 7-8.
1. Missing Payroll
¶35 Husband argues the special master erred by "disregard[ing] [h]usband's specific, detailed testimony" about the $1,060,132 in husband's payroll unaccounted in husband's bank accounts.
¶36 Husband claims he received the missing payroll in checks, which he then cashed. Husband testified he spent about $224,000 of those funds on home improvements and a trip to Europe. Husband also claimed he spent thousands on international trips with wife and wife's separate trips with her friends. Though husband claims he kept a list of most of these trips between 2011 and 2015, he did not keep track of his cash expenditures. Other evidence, such as records and receipts, do not support husband's "specific, detailed testimony."
¶37 Husband also claims wife kept track of all the cash expenditures on a stand-alone "financial computer" unconnected to the Internet. Wife acknowledges she and husband sometimes used cash, but she testified she never cashed any of husband's payroll checks and did not remember even seeing them. Wife also denied ever having or maintaining a "financial computer."
¶38 The special master found wife's testimony credible and found husband failed to meet his burden of proof because cash is difficult to track, and husband provided no other evidence beyond his own testimony. The special master also found husband did not sufficiently show he used the cash to benefit the community. On this record, husband has shown no abuse of discretion.
2. Payments to his girlfriend, M.H.
¶39 Though husband admitted paying M.H. more than $100,000, he argues the evidence was insufficient to show he indirectly paid M.H. another $87,321. Husband argues the evidence showed his brother, Worldwide, and an unidentified source paid M.H. the $87,321-not him. Husband also claims his brother paid M.H. for firearms and a car he bought from her. Husband also testified M.H. did not work for Worldwide. Even so, he said Worldwide paid her for some work she did.
¶40 Wife argues the evidence showed husband was the source of the payments. During trial, wife presented M.H.'s affidavit from husband's employment dispute. Under penalty of perjury, M.H. said husband paid her $7,500 per month for about four years beginning in January 2013. M.H. also said husband's brother paid her "on several occasions" and husband would use his business credit card to pay for many other expenses she incurred. Wife's expert showed $87,321 in payments to M.H. from an unknown sources-namely husband's brother through Bank of America, and from Worldwide. Wife alleged, and husband admitted, his Bank of America account listed his brother's address. Wife also alleged Worldwide sent checks to husband's brother's address, though husband said everything was electronic and "nothing was mailed."
¶41 The special master considered the conflicting evidence and testimony and was "unconvinced" by husband's explanations. This court will not reweigh such conflicting evidence on appeal. See Gutierrez, 193 Ariz. at 347, ¶ 13.
3. Unidentified Expenses Totaling $40,000
¶42 Husband argues $40,000 in unidentified expenses did not constitute waste. Husband testified he used the money to gamble and, with his winnings, he earned $8,000 for the community. Husband, however, provided no documentary proof supporting this testimony.
¶43 The special master noted the difficulty of tracking cash and found husband failed to rebut wife's prima facie showing of waste. Without proof of how husband spent the money, or proof of the source of the later deposit, he has not shown the superior court abused its discretion in adopting the special master's findings. See Gutierrez, 193 Ariz. at 347, ¶ 8 (finding waste where husband "was unable to explain with any specificity how he had spent such a large sum of money").
4. Bank of America Account
¶44 Husband argues the special master double-counted $357,848 deposited into a Bank of America account and challenges the special master's finding of $20,430 in credit card payments as waste. The $357,848 is based on these expenses: (1) $231,660 in unidentified withdrawals; (2) $20,430 in credit card payments; (3) $90,500 in payments to M.H.; and (4) $75,000 in casino payments. Wife's expert identified those expenses.
¶45 Contrary to husband's arguments, the special master excluded two of the four challenged amounts-the payments to M.H. and the casino payments-because they had been counted in other calculations. So, husband's arguments about those two amounts lacks any factual basis. With that understanding, we need only address the unidentified withdrawals and the credit card payments.
¶46 As to the $231,660 in unidentified withdrawals, husband's argument rests on his claim the monies deposited into his Bank of America account were the missing payroll amounts. Husband provides no other support for his argument, and basic math does not support it. The Bank of America statements showed deposits exceeded the missing payroll amounts. Husband never explained the difference. That evidence alone supports the special master's conclusion the income deposited into the Bank of America account was in addition to the $1,060,132 in missing payroll, a conclusion the record supports.
¶47 As to the $20,430 in credit card payments, husband argues the special master should have presumed the credit card debt was a community obligation. See In re Marriage of Flower, 223 Ariz. 531, 535, ¶ 12 (App. 2010) (citation omitted). That presumption, however, does not apply once one spouse makes "a prima facie showing of abnormal or excessive expenditures." Gutierrez, 193 Ariz. at 346, ¶ 6 (emphasis added). Husband says no evidence shows the charges were not community debt paid with community funds. Evidence supports the finding wife showed the payments were an excessive and abnormal expenditure and did not know how husband spent the funds. The evidence, thus, supports the finding wife made a prima facie showing and the presumption did not apply. See id.
B. Division of Community Property
¶48 Husband argues the special master erred by not dividing the personal property in his and wife's respective possession. The special master found husband's evidence could not support accurate values for the disputed items. Husband does not directly challenge that determination. Instead, he argues the special master should have ordered either the return or sale of the items husband and wife possessed. Husband cites no authority mandating the special master issue such an order.
¶49 The superior court must divide property "equitably, though not necessarily in kind." A.R.S. § 25-318.A. This court will not disturb that division absent an abuse of discretion. Boncoskey v. Boncoskey, 216 Ariz. 448, 451, ¶ 13 (App. 2007). "The only inherent limitation on the power of the trial court to apportion community property is that the division, in the final analysis, must result in a substantially equal distribution which neither rewards nor punishes either party." Lee, 133 Ariz. at 121.
¶50 Husband claimed he possessed personal property worth about $24,000 while wife possessed property worth about $182,000. Husband testified he based his valuations on online research and "what [he] thought the value was." Husband presented about a dozen exhibits showing photos to support his valuations, including shopping bags and credit card statements. Wife presented three exhibits: a list of furniture, interrogatory responses, and photos of personal property. Wife's testimony contradicted husband's. And some items husband presented were more than a decade old but he valued them as if they were new.
¶51 Because the evidence supports the special master's finding he could not accurately value the community property, husband has not shown the superior court abused its discretion in awarding husband and wife the property in their possession.
C. Spousal Maintenance
¶52 The special master awarded wife $3,500 per month in spousal maintenance for six years. Husband argues the special master erred in finding wife did not have enough funds to be self-sufficient and in calculating husband's income. Husband argues wife is ineligible for spousal maintenance because she has enough funds from the distribution of assets and equalization payments to be self-sufficient.
¶53 We must vacate the spousal maintenance award for the superior court to reconsider the amount and duration of any spousal maintenance award for two reasons. First, we remand for the superior court to reconsider the equitable division of the disputed $750,000, itself a significant asset. Second, we remand for the superior court to reconsider the extent to which husband's equalization obligation to wife should be in the form of a judgment given the superior court's ability to require husband to use some or all of his share of the $750,000 community asset and the potential sale of the marital residence. Though we express no opinion on the merits, the superior court must consider the A.R.S. § 25-319.B factors on remand. We, thus, do not address husband's arguments about those factors.
¶54 Because the superior court awarded wife half of husband's post-petition lease payments on the Porsche as retroactive spousal maintenance, not as part of the equitable division of property, we also must vacate that award for the superior court's further consideration.
¶55 Even so, on remand, wife remains eligible for spousal maintenance. A spouse is eligible for spousal maintenance if the requesting spouse meets any of the five listed circumstances under A.R.S. § 25-319.A (2018). In re Marriage of Cotter, 245 Ariz. 82, 86, ¶ 10 (App. 2018) (explaining the applicable version of A.R.S. § 25-319.A requires only one circumstance for eligibility). The special master found wife satisfied two of those criteria: (1) she lacked enough property to provide for her reasonable needs; and (2) she had "significantly reduced [her] income or career opportunities for the benefit of the other spouse." A.R.S. § 25-319.A.1, .5. Husband does not challenge the second finding and the record supports the special master's findings. Nothing in this decision alters those facts or findings.
Effective September 24, 2022, the Arizona Legislature amended A.R.S. § 25-319, requiring the Arizona Supreme Court to develop spousal maintenance guidelines. Because wife filed and served her petition for dissolution before the 2022 amendments took effect, we consider husband's challenge under the pre-2022 statute.
¶56 We, thus, vacate the award of spousal maintenance, including the award for the Porsche payment, and order the superior court to reconsider the appropriate spousal maintenance award, if any, on remand.
D. Attorney Fees
¶57 Husband argues the superior court erred by awarding wife $125,000 in attorney fees. As with the spousal maintenance award, we must vacate that order and remand to the superior court to reconsider the appropriate attorney-fees award, if any, on remand.
ATTORNEY FEES ON APPEAL
¶58 Husband and wife both request attorney fees and costs on appeal under A.R.S. § 25-324 and ARCAP 21. In the exercise of the court's discretion, we deny both parties' request for attorney fees on appeal. Because wife is the successful party on appeal, we award her costs upon timely compliance with ARCAP 21.
CONCLUSION
¶59 We affirm in part, reverse in part, and remand for further proceedings consistent with this decision as discussed in paragraph 4.