Opinion
No. 1 CA-CV 13-0590
11-25-2014
In re the Marriage of: MARIA LOUISE LANGER, Petitioner/Appellee, v. MICHAEL AVEDIS CHILINGERIAN, Respondent/Appellant.
COUNSEL Rowley Chapman & Barney, Ltd., Mesa By Joshua R. Boyle Counsel for Petitioner/Appellee Scott L. Patterson, Tempe Counsel for Respondent/Appellant
NOTICE: NOT FOR PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED. Appeal from the Superior Court in Maricopa County
No. FN2012-051435; FN2012-093203 (Consolidated)
The Honorable Timothy J. Ryan, Judge
AFFIRMED
COUNSEL Rowley Chapman & Barney, Ltd., Mesa
By Joshua R. Boyle
Counsel for Petitioner/Appellee
Scott L. Patterson, Tempe
Counsel for Respondent/Appellant
MEMORANDUM DECISION
Judge Randall M. Howe delivered the decision of the Court, in which Presiding Judge Patricia A. Orozco and Judge Maurice Portley joined. HOWE, Judge:
¶1 Michael A. Chilingerian ("Husband") appeals various provisions in the final decree ending his marriage to Maria L. Langer ("Wife"). For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 Husband and Wife were together for 23 years before they married. Before the marriage, Wife bought a condo in Wickenburg, Arizona. She also formed Flying M Air, LLC ("FMA"), a business that provided helicopter tours, agricultural work, and other flight-related services. During this time, FMA purchased a helicopter for $346,000, which was encumbered by a $160,000 loan.
¶3 Husband and Wife married in 2006, but "nothing changed" in their relationship. They continued to individually manage their finances. Wife kept as her sole and separate property the Wickenburg condo and continued to be the sole owner and member of FMA. Like before they married, Husband "occasionally" contributed to FMA by taking money from passengers and loading them while Wife flew the helicopter. FMA reimbursed him with a rent-free office, purchase of a horse, and use of the helicopter.
¶4 Husband and Wife bought and jointly owned a house in Wickenburg, Arizona and a condo in Phoenix, Arizona. They had a joint checking account, a home equity line of credit, and a joint credit card account. They made equal monthly deposits to the joint account, which was used for household expenses. But for personal expenditures, they used their own money from their own accounts earned from their individual jobs.
¶5 During the marriage, FMA reduced the loan balance by $129,626 with its profits and profits from Flying Air Productions, another LLC Wife solely owned. FMA also opened a reserve account—"Flying M Savings"—and began to save for the helicopter's overhaul. The price for an overhaul ranges from $220,000 to $240,000, excluding the cost for replacement parts.
¶6 In 2008, Wife sold her separately owned condo and used the proceeds to partially cover the price of a hangar at the Page Municipal Airport. Pursuant to the Internal Revenue Code § 1031, Wife exchanged her condo for the hangar as a "like-kind exchange" because both were rental property. All documents regarding the exchange referred to the condo as Wife's "sole and separate property." Wife paid the hangar's remaining balance with money from her personal bank account, not the joint account.
¶7 In 2012, both Wife and Husband petitioned for dissolution of marriage. After consolidating the cases, the family court dissolved the marriage. Along with distributing various vehicles, personal property, undeveloped real property, and other assets and debts, the court awarded Husband the Wickenburg house and the Phoenix condo, with equalization to Wife, as well as four bank accounts, totaling $31,736.57. Wife received two bank accounts, totaling $4,704.47, and the hangar as her sole and separate property. The court found that the community had no interest in the hangar and that Husband was not entitled to any portion of it.
¶8 The court also awarded all of FMA's corporate assets and debts to Wife, concluding that FMA was Wife's sole and separate property, and "[c]onsidering the overall marital estate, the short duration of the marriage, the Court finds it equitable to award all of the corporate assets to Wife." Assets included the helicopter and the reserve account, containing $132,176.94 on the date of service. Regarding the helicopter, the court reasoned that "the payments reducing the loan balance on the helicopter were made by the corporation, not Wife." Moreover, Wife started the business before the marriage and "used profits from the business to reinvest in the business and pay for the helicopter." Husband timely appealed.
DISCUSSION
¶9 Husband argues that the family court erred by (1) awarding the FMA reserve account to Wife as her sole and separate property, (2) not reimbursing the community for loan payments on the FMA helicopter made during the marriage, and (3) awarding the hangar to Wife as her sole and separate property. We review the family court's division of property for an abuse of discretion. Davies v. Beres, 224 Ariz. 560, 562 ¶ 6, 233 P.3d 1139, 1141 (App. 2010). The characterization of property, however, is a conclusion of law that we review de novo. Id. This Court "cannot and will not substitute its judgment for a decision properly made in the family court." In re Marriage of Thorn, 235 Ariz. 216, 223 ¶ 33, 330 P.3d 973, 980 (App. 2014).
1. The FMA Reserve Account
¶10 Husband argues that funds accumulated in FMA's reserve account are community property that the family court is required to apportion equitably, which means equally, between the parties. Generally, property that a spouse owns before marriage and the income and profits of that property accruing during marriage are the separate property of that spouse. A.R.S. § 25-213(A). But in some instances, the general rule is modified, and profits from separate property are either community or separate depends on whether they are the result of a spouse's individual toil and application or the business's inherent qualities. Rueschenberg v. Rueschenberg, 219 Ariz. 249, 252 ¶ 12, 196 P.3d 852, 855 (App. 2008); see also Cockrill v. Cockrill, 124 Ariz. 50, 52, 601 P.2d 1334, 1336 (1979). Profits that result from the inherent qualities of the business are separate property, whereas those that result from a spouse's individual toil and application are community property. Rueschenberg, 219 Ariz. at 252 ¶ 12, 196 P.3d at 855. When profits are from the individual toil and application of a spouse—and thus community property—the family court "must equitably apportion the combined total of the profits . . . of the separate business [between the spouses] if the efforts of the community caused a portion of that increase and substantial justice requires it." Id. at 254-57 ¶¶ 20-31, 196 P.3d at 857-60 (emphasis added); see also Toth v. Toth, 190 Ariz. 218, 221, 946 P.2d 900, 903 (1997) (providing that an equitable distribution is not always an equal distribution, and "[t]he trial court has discretion in this decision"). To do otherwise would deprive either the separate property owner of a reasonable return on the investment or the community of just compensation for its labor. Rueschenberg, 219 Ariz. at 253 ¶ 14, 196 P.3d at 856.
¶11 In this case, FMA's profits were due to Wife's independent toil and application, thereby making it community property. She owned and operated FMA herself, and the record does not indicate that she received a specific salary for her work. For the apportionment, excluding the various vehicles, personal property, real property, and other assets and debts divided between the parties, Husband received both the Wickenburg house and Phoenix condo, as well as accounts totaling $31,736.57. Wife, on the other hand, received the hangar and accounts totaling $4,704.47, as well as the debts associated with FMA.
¶12 Moreover, as the sole owner and pilot of FMA, Wife was entitled to a reasonable return on her investment in the company, and an equal apportionment would deprive her of such. Correspondingly, the community would not be deprived of just compensation by the family court's equitable apportionment because it received a rent-free office, a horse, and use of the helicopter for Husband's occasional labor. Finally, the parties' Joint Pretrial Statement and the family court's minute entry reveals that the court considered the overall martial estate, as well as the short duration of the marriage, and found as a result that it was "equitable to award all of the corporate assets to Wife." Consequently, the family court did not abuse its discretion in awarding the FMA reserve account to Wife.
2. The FMA Helicopter Note Payments
¶13 Husband argues next that the community should have been reimbursed for payments made against a note on the helicopter. "[W]hen community funds are expended to improve the separate property of one spouse, the community does not acquire an interest in the separate property, but it does acquire a claim for reimbursement in accordance with the amount of community funds expended." In re Marriage of Flower, 223 Ariz. 531, 538 ¶ 27, 225 P.3d 588, 595 (App. 2010). But the claim fails if no evidence supports the fact that the community is entitled to reimbursement. Bourne v. Lord, 19 Ariz.App. 228, 231, 506 P.2d 268, 271 (1973).
¶14 In the present case, Wife acquired the helicopter in her capacity as a FMA member and before her marriage to Husband. By such acquisition, it became her separate property. Although the helicopter was subject to an encumbrance that was satisfied partially during the marriage, the evidence does not contradict the finding that FMA's profits satisfied this encumbrance. Moreover, even if the community was entitled to reimbursement, no evidence in support thereof was presented. In fact, after their marriage, the parties kept their previously existing bank accounts and established a joint account solely for household expenses. No evidence was produced that Wife used money from the joint account to pay for the note. Instead, sufficient evidence in the record reveals that the corporation, not Wife, made payments on the note. Consequently, the family court did not abuse its discretion in finding that the community was not entitled to reimbursement for FMA's note payments.
3. The Hangar
¶15 Husband argues finally that the hangar was not Wife's sole and separate property and the community has an interest in it. Generally, "[p]roperty acquired by either spouse during marriage is presumed to be community property, and the spouse seeking to overcome the presumption has the burden of establishing a separate character of the property by clear and convincing evidence." Brebaugh v. Dean, 211 Ariz. 95, 98 ¶ 6, 118 P.3d 43, 46 (App. 2005) (citation omitted); see also A.R.S. § 25-211(A). However, the proceeds from the sale of separate property—although sold during marriage—remain the separate property of the seller. Potthoff v. Potthoff, 128 Ariz. 557, 563, 627 P.2d 708, 714 (App. 1981); see also Flynn v. Allender, 75 Ariz. 322, 325, 256 P.2d 560, 562 (1953) ("After property purchased on credit or with borrowed funds has acquired the status of separate property of one of the spouses at the time of purchase, its status remains such regardless of the nature of the funds which thereafter satisfy the obligation, whether community funds or separate funds of the other spouse.") (internal quotation marks and citation omitted). As such, property purchased during the marriage by one spouse and with the rents and profits of his or her separate estate are not subject to any marital rights of the other spouse. Woffenden v. Charouleau, 2 Ariz. 91, 92, 11 P. 117, 118 (1886).
¶16 Here, Husband does not dispute that Wife owned the Wickenburg condo as her sole and separate property before and during the marriage. All the documents regarding the exchange referred to the condo as Wife's "sole and separate property." Moreover, nothing in the record indicates that the condo's character was changed by agreement or by operation of law. See Potthoff, 128 Ariz. at 561, 627 P.2d at 712 ("[O]nce that status as community or separate becomes fixed, it retains that character until changed by agreement of the parties or by operation of law."). Accordingly, Wife could use the proceeds from the sale of the condo—her sole and separate property—to purchase another property, without subjecting the new property to any martial rights of Husband. Wife did exactly this. She "exchanged" the condo for the hangar in a "like-kind" transaction, essentially applying directly the proceeds from the sale of the condo to payment for the hangar. For the remaining balance, Wife testified that she paid it with the funds from her personal account, which was consistent with how the parties purchased personal expenditures after they married. The family court accepted Wife's testimony, and we "defer to the judgment of the trial court which had the opportunity to assess the credibility, attitude and condition of the parties at trial." In re Pima Cnty. Severance Action No. S-1607, 147 Ariz. 237, 239, 709 P.2d 871, 873 (1985).
¶17 Husband argues that Wife "failed to provide documentation to tie together this transaction with the purchase of the hangar," and as a result, she did not submit clear and convincing evidence to rebut the presumption of community property. Wife, however, was not required to rebut this presumption. Her transaction fell outside the general rule that property acquired during marriage was community. The hangar was purchased with the proceeds from the sale of separate property and Wife paid the remaining balance with funds from her personal account. Even if Wife had the burden to rebut the community presumption, the record provides sufficient evidence to make the fact that the hangar was purchased with Wife's sole and separate property "highly probable or reasonably certain." Parker v. City of Tucson, 233 Ariz. 422, 436 ¶ 39, 314 P.3d 100, 114 (App. 2013). Consequently, the hangar is not community property, and the family court correctly characterized it as Wife's sole and separate property.
4. Attorneys' Fees on Appeal
¶18 Both parties request an award of attorney's fees on appeal pursuant to A.R.S. § 25-324. In our discretion, we deny both requests.
CONCLUSION
¶19 For the foregoing reasons, we affirm.