Opinion
No. 1 CA-CV 19-0228 FC
02-11-2020
In re the Matter of: PHILIP MONTEMURRO, Petitioner/Appellant, v. LAURA G. MONTEMURRO, Respondent/Appellee.
APPEARANCES Philip Montemurro, Goodyear Petitioner/Appellant
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. FN2014-003648
The Honorable Howard D. Sukenic, Judge
AFFIRMED IN PART; VACATED IN PART; REMANDED
APPEARANCES Philip Montemurro, Goodyear
Petitioner/Appellant
MEMORANDUM DECISION
Judge Diane M. Johnsen delivered the decision of the Court, in which Presiding Judge Samuel A. Thumma and Judge Randall M. Howe joined. JOHNSEN, Judge:
¶1 Philip Montemurro ("Husband") challenges several portions of the dissolution decree ending his marriage to Laura Montemurro ("Wife"). Husband argues the special master erred by failing to timely rule and by failing to file a transcript or any exhibits. Husband also argues the superior court erred (1) by refusing to hear evidence of certain reimbursement claims, (2) by improperly calculating the equalization payment, (3) by improperly applying federal tax provisions in the decree, and (4) by declining to reduce the attorney's fee award the special master issued to Wife. For the following reasons, we affirm in part, vacate in part and remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
¶2 On appeal, this court views the evidence in a light most favorable to sustaining the superior court's findings. In re Marriage of Priessman, 228 Ariz. 336, 337, ¶ 2 (App. 2011). Husband and Wife were married in 1987, and Husband petitioned for dissolution in August 2014, serving the petition that same month. In August 2015, the superior court entered temporary orders on spousal maintenance and other matters. In March 2017, the court entered a stipulated order appointing a special master to hear evidence and rule on all remaining contested issues. The special master held a three-day evidentiary hearing in May 2017, then issued an initial report in December 2017 and a revised final report ("Report") in January 2018.
¶3 Both parties objected in the superior court to various rulings by the special master. In an attempt to resolve these and other issues, the superior court held a two-day evidentiary hearing in June and July 2018 ("2018 evidentiary hearing"). After issuing a ruling in August, the superior court entered a decree of dissolution in November 2018. Husband then filed a motion "(1) to Correct/Add Findings of Fact; (2) to Alter or Amend; (3) to Correct Mistakes/Errors; and/or (4) For New Trial." The court granted Husband's motion in part and denied it in part.
¶4 Husband timely appealed. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution, and Arizona Revised Statutes ("A.R.S.") sections 12-120.21(A)(1) (2020) and -2101(A)(1) (2020).
Absent material revision after the relevant date, we cite the current version of a statute or rule.
DISCUSSION
¶5 "In apportioning community property between the parties at dissolution, the superior court has broad discretion to achieve an equitable division, and we will not disturb its allocation absent an abuse of discretion." Boncoskey v. Boncoskey, 216 Ariz. 448, 451, ¶ 13 (App. 2007). "But the court may abuse its discretion if it commits an error of law in the process of exercising its discretion." Id. (quotation omitted). We review questions of law de novo. In re Marriage of Pownall, 197 Ariz. 577, 580, ¶ 7 (App. 2000). When, as here, an appellant has raised a debatable issue, we may treat the appellee's failure to file an answering brief as a confession of error. See McDowell Mountain Ranch Cmty. Ass'n v. Simons, 216 Ariz. 266, 269, ¶ 13 (App. 2007). We decline to do so here.
A. Special Master's Timeliness and the Absence of Transcripts and Exhibits.
¶6 Husband first argues the special master did not meet his 60-day deadline under Arizona Rule of Family Law Procedure ("Rule") 72 (2017) to submit his Report to the superior court. Rule 72(B) provides that "[t]he order of reference appointing a family law master . . . shall fix the time and place for beginning and closing the hearings and for filing the master's report." Here, the order appointing the special master stated that "[t]he Special Master shall issue his Report to the Court within 60 days of the conclusion of the Special Master proceedings." Although Husband argues the special master did not comply with that deadline, he does not say how the delay prejudiced him. In the absence of any prejudice, the special master's delay is immaterial. See In re Marriage of Molloy, 181 Ariz. 146, 150 (App. 1994) (reversal warranted only if "complaining party suffers prejudice as a result of the error").
Rule 72 was amended in 2018, effective January 1, 2019. Because the special master was appointed after January 1, 2017 and completed work before the effective date of the 2018 amendment, we cite the 2017 version of the rule throughout this decision. See Ariz. R. Fam. Law P. 72(M).
¶7 Husband also argues the superior court erred under Rule 72 by ruling on the Report without a transcript of the hearing the special master conducted. Lacking the transcript, the superior court declined to address any objection to findings the special master made based on evidence offered at that hearing.
¶8 "We construe rules of court using the same principles applicable to interpretation of statutes." Chronis v. Steinle, 220 Ariz. 559, 560, ¶ 6 (2009). "If a rule's language is plain and unambiguous, we apply it as written without further analysis." State v. Salazar-Mercado, 234 Ariz. 590, 592, ¶ 4 (2014).
¶9 Husband argues the special master was required to file a transcript of the hearing, but the special master had no obligation to do so because no transcript was ever prepared. The rule stated: "Unless otherwise ordered by the order of reference, the master shall file with the clerk of the court any transcript of the proceedings prepared and . . . the evidence and original exhibits presented." Ariz. R. Fam. Law P. 72(E) (emphasis added). When, as here, no transcript had been prepared, the special master did not violate the rule by failing to file a transcript that did not exist. Nor does the record indicate that either of the parties had a transcript prepared. Nothing in the rule imposed an independent duty on the special master to have a transcript prepared without any request by the parties. See id.
¶10 Husband also argues the special master erred by failing to file the evidence and original exhibits from the hearing with the superior court. The only resulting prejudice Husband specifically complains of is that "[t]he Court could have used [Husband's expert report] . . . as a guideline to determine that [Husband] was entitled to receive" certain reimbursement payments. But Husband offered that expert report in evidence at the 2018 evidentiary hearing, and the superior court sustained Wife's objection to its admission, a ruling Husband does not challenge on appeal. Accordingly, we reject Husband's argument that the special master erred by failing to file the transcript and original exhibits from the hearing with the superior court. See Molloy, 181 Ariz. at 150.
B. Husband's 2018 Reimbursement Claims.
¶11 Husband contends the superior court erred by refusing to hear evidence regarding his claim for reimbursement under Bobrow v. Bobrow, 241 Ariz. 592 (App. 2017), for community expenses he paid between March 1, 2018 and November 2, 2018. We review the superior court's exclusion of evidence for an abuse of discretion. State v. Bernstein, 237 Ariz. 226, 228, ¶ 9 (2015).
¶12 The temporary orders issued in 2015 required Husband to pay certain expenses for various homes the community owned and ordered Wife to make monthly payments on the "FIA Credit Card." In 2016, the court again ordered Husband to pay expenses for the homes. The special master considered Husband's reimbursement claims, concluded Bobrow applied and ordered Wife to reimburse Husband for his payment of community obligations after the dissolution petition had been filed. The special master did not, however, consider any possible reimbursement claims that would arise from payments made after issuance of the special master's decision but before entry of a decree.
¶13 Husband objected to the Report, arguing the special master should have considered and granted his post-hearing, pre-decree reimbursement claims, and in his pretrial statement he asked the superior court to order those reimbursements. Although the decree terminated Husband's obligation to pay the community expenses on the couple's New Jersey home as of March 1, 2018, the court denied Husband's request to be reimbursed for expenses he incurred after March 1, 2018, pursuant to temporary orders then in effect, before entry of the decree.
¶14 Husband then moved to amend the decree to release his obligation as to two other homes as of March 1, 2018 as well. The superior court agreed but also ruled "that neither party shall owe the other any additional reimbursement nor shall Wife be exposed to any liability for any unspecified failure to pay any debt by Husband related to these additional properties." In the same motion, Husband also argued the court should have heard evidence that Husband was continuing to make payments on the FIA card and marital residences after March 1, 2018. The superior court denied Husband's request.
¶15 Husband argues on appeal the court erred under Bobrow by refusing to consider evidence that he continued to pay expenses on the marital homes after March 1, 2018, and continued to make payments on the FIA credit card (which was Wife's obligation under the temporary orders). We agree with Husband that under Bobrow, the superior court should have allowed him to present evidence that he paid community expenses with his separate property from March 1, 2018 to November 2, 2018, the date of the decree.
¶16 In Bobrow, we held that when a divorcing spouse pays community obligations after a petition for dissolution is filed, the matrimonial presumption of a gift does not apply. 241 Ariz. at 594, ¶ 1. As we explained, "[a] spouse who voluntarily services community debt and maintains community assets with separate property should not be penalized when a mutual agreement cannot be reached. When such payments are made, they must be accounted for in an equitable property distribution." Id. at 596, ¶ 19 (footnote omitted). In that case, we remanded to the superior court to determine the payor-spouse's reimbursement claims of "post-petition payments of community expenses." Id. at 599, ¶ 34.
¶17 Here, Husband contends he paid community obligations because the temporary orders required him to, but his payments should be treated just as the voluntary payments in Bobrow. See id. at 596-97, ¶¶ 19-20. The time period for which Husband seeks relief runs from the date he was retroactively released from his payment obligations until the date the court entered the decree. It does not matter that this period began after the special master issued his Report and terminated after the 2018 evidentiary hearing. As we explained, Bobrow reimbursements are "equitable" in nature, and "[w]hen such payments are made, they must be accounted for . . . ." Id. at 596, ¶ 19 (emphasis added).
¶18 Accordingly, we vacate the amended decree's provision about additional reimbursement, supra ¶ 14, and remand so that Husband may present evidence of his reimbursement claims under Bobrow for payments he made on the marital residences and the FIA credit card between March 1, 2018 and November 2, 2018.
Although Husband argued to the superior court he was entitled to reimbursement for payments he made before March 1, 2018, we grant relief only for the time period Husband addressed in his opening brief: March 1, 2018 to November 2, 2018. See ARCAP 13(a)(9) (appellant must state "precise relief sought" in opening brief). --------
C. Equalization Payment.
¶19 Husband next argues the superior court erred by (1) failing to correctly calculate the equalization payment it ordered Wife to pay to him and by (2) disregarding the tax effects on a specific asset the court ordered Wife to use in satisfying this payment. We address each argument in turn.
1. Calculation of equalization payment.
¶20 Husband first argues the superior court used the incorrect dollar value of Wife's interest in a Tempe townhouse in ordering her to satisfy her equalization obligation. Husband contends that when the court adopted the special master's Report, it failed to account for the fact that the townhouse already had been sold. According to Husband, this created a disparity between the initial estimated net proceeds of $80,000 and the ultimate sale price of $78,779.69, which the court should have accounted for in the final equalization payment.
¶21 Husband, however, did not raise this issue in his pretrial statement (filed a month after he alleged the townhouse was sold), nor did he present argument or testimony about the issue at the 2018 evidentiary hearing. Consequently, this issue was not properly before the superior court and, therefore, we do not consider it. See Leathers v. Leathers, 216 Ariz. 374, 378, ¶ 19 (App. 2007) (contested issue not raised in pretrial statement not properly before superior court).
¶22 Husband also argues the superior court erred when it sustained his objection to a mathematical error the special master made in calculating the equalization payment but failed to specify a remedy for that error.
¶23 After the special master issued his Report, the parties agreed that as to a Chase Hyatt credit-card debt, the special master made a mathematical error that the superior court was required to correct by increasing Wife's assets by $7,000. At the 2018 evidentiary hearing, the court sustained Husband's objection to the Report on this ground by stipulation of the parties. The final decree stated the following:
Report governs with the agreement by the parties that Wife shall receive a $7,000 increase to her assets on Page 42 of the Report, since Husband has been paying her allocated share of the debt on this card and Husband's 23% allocation shall be handled outside the equalization process since it does not belong to the community.The court thereafter denied Husband's motion to alter or amend the decree to specify which assets would be used to satisfy the $3,500 increase in Wife's equalization payment.
¶24 We agree with Husband that, given the increase in Wife's assets over the amount stated in the Report, the decree should have adjusted Wife's equalization obligation to account for that change. Accordingly, we remand this portion of the decree so the superior court may do so.
2. Tax effects on an asset used to satisfy the equalization payment.
¶25 Husband also contends the superior court abused its discretion "when it re-affirmed the Special Master's decision not to consider the tax [e]ffects on an asset used by [Wife] to satisfy her equalization payment to [Husband]."
¶26 The special master ordered Wife to pay her equalization payment to Husband using certain assets. In doing so, the special master credited Wife with a payment of $202,000 when he awarded Husband her half-interest in an individual retirement account ("IRA"). The special master valued the account at $404,000, meaning that he valued Wife's interest in the account at $202,000. Husband objected, arguing that because funds in the IRA will be taxed upon withdrawal from the account, the special master erroneously allowed Wife to pay "a post-tax equalization payment with a pre-tax asset." The superior court denied Husband's objection, explaining the special master's decision was discretionary. The superior court later denied Husband's motion to amend the decree on this ground.
¶27 Generally, funds in an IRA are taxed upon their withdrawal or distribution from the account. 26 U.S.C. § 408(d) (2018) (subsequent amendments to other subsections omitted). According to Husband, assuming a tax rate of 33%, the true value of the IRA was $135,340 post-tax, not $202,000 as the special master ascribed to it, and the superior court should have considered that disparity when using the IRA to satisfy the equalization payment.
¶28 "In dividing property, the court may consider all debts and obligations that are related to the property, including accrued or accruing taxes that would become due on the receipt, sale or other disposition of the property." A.R.S. § 25-318(B) (2020) (emphasis added). Under this statute, the special master had discretion to consider the tax effects of withdrawing funds from the IRA when awarding it as part of the equalization payment but was not required to do so. See In re Maricopa County Superior Court No. MH2003-000240, 206 Ariz. 367, 369, ¶ 7 (App. 2003) ("may" provision generally interpreted as permissive). Therefore, the superior court did not abuse its discretion by adopting the special master's decision to award the pre-tax value of the IRA to Husband in satisfying the equalization payment.
D. Decree's Application of Federal Tax Provisions.
¶29 Husband also argues the superior court erred by applying federal tax provisions that were not yet in effect at the time it entered the decree. Specifically, he argues that because federal law treated spousal maintenance as income to the recipient-spouse and deductible by the payor-spouse at the time the decree was entered, the court improperly applied federal tax law that did not become effective until 2019 when it ordered Husband's spousal-maintenance payments to Wife to be a tax-neutral event.
¶30 The Internal Revenue Code previously treated spousal maintenance as income to the recipient-spouse and as deductible by the payor-spouse. 26 U.S.C. § 71(a) (2012) ("Gross income includes amounts received as alimony or separate maintenance payments.") (repealed 2017); id. § 215(a) (2012) ("In the case of an individual, there shall be allowed as a deduction an amount equal to the alimony or separate maintenance payments paid during such individual's taxable year.") (repealed 2017). Congress repealed these provisions in 2017, making spousal maintenance neither income to the recipient-spouse nor deductible by the payor-spouse, and it made the change effective to divorce decrees entered after December 31, 2018 (absent an exception not relevant here). Tax Cuts and Jobs Act, Pub. L. No. 115-97, § 11051, 131 Stat. 2054, 2089 (2017); see also Topic No. 452 Alimony, IRS, https://www.irs.gov/taxtopics/tc452 (last updated Jan. 3, 2020).
¶31 The decree, entered in November 2018, stated: "All spousal maintenance paid by Husband to Wife shall not be tax deductible for Husband and shall not be deemed income to Wife for income tax purposes." Regardless of what the decree said about the tax effects of spousal-maintenance payments, however, "ultimately it is the Internal Revenue Code and not State court orders that determine one's eligibility to claim a deduction for Federal income tax purposes . . . ." Shenk v. Comm'r of Internal Revenue, 140 T.C. 200, 206 (2013). Thus, even assuming the decree incorrectly stated the applicable federal tax law regarding Husband's spousal-maintenance payments to Wife, federal law, not the decree, governs tax treatment of those payments.
E. Refusal to Reduce Special Master's Attorney's Fees Award.
¶32 Husband finally argues the superior court abused its discretion by not reducing the attorney's fees the special master awarded to Wife because the disparity in financial resources the special master found when he made the award no longer existed by the time the superior court modified the special master's spousal-maintenance rulings. We review an award of fees for an abuse of discretion. Magee v. Magee, 206 Ariz. 589, 590, ¶ 6 (App. 2004).
¶33 In his Report, the special master ordered Husband to pay $50,000 toward Wife's attorney's fees under A.R.S. § 25-324(A) (2020), which provides:
The court from time to time, after considering the financial resources of both parties and the reasonableness of the positions each party has taken throughout the proceedings, may order a party to pay a reasonable amount to the other party for the costs and expenses of maintaining or defending any proceeding under this chapter . . . .The special master found a financial disparity between the parties, citing Husband's "extensive retirement savings" and other assets, and explaining that "for as long as [Husband] continues to work, his income will be in excess of $600,000.00 per year." In December 2017, however, Husband notified the court and special master that he was discharged from his employment as of December 31, 2017.
¶34 At the 2018 evidentiary hearing, the superior court denied Husband's objection to the special master's fee award, but it subsequently reduced Husband's spousal-maintenance payments to Wife. The superior court denied both parties' requests for fees, finding "there [was] not a substantial disparity of financial resources between the parties."
¶35 On this record, we cannot say the superior court abused its discretion in refusing to reduce the special master's fee award. See Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, 265, ¶ 18 (App. 2004) ("We will not disturb the trial court's discretionary award of fees if there is any reasonable basis for it." (citation omitted)). First, at the time the fees were incurred during the proceedings before the special master, Husband was employed and earning a high salary, and Wife had only modest assets. The superior court's finding that a financial disparity did not exist between the parties at the time of the 2018 evidentiary hearing was not dispositive of whether one existed at the time of the special master's 2017 evidentiary hearing.
¶36 Second, the superior court's reduction of Husband's spousal-maintenance payments did not require it to similarly reduce the special master's attorney's fee award. While spousal maintenance constitutes a forward-looking obligation, see Schroeder v. Schroeder, 161 Ariz. 316, 321 (1989), the special master's fee award was backward-looking, intended to ensure that "the poorer party ha[d] the proper means to litigate the action," Quijada v. Quijada, 246 Ariz. 217, 222, ¶ 17 (App. 2019) (citation omitted).
¶37 Third, in light of the special master's finding that each party had incurred more than $200,000 in fees, an award of $50,000 was not excessive or unreasonable under the circumstances. See A.R.S. § 25-324(A) (allowing award of "reasonable amount" of fees). In sum, the superior court did not abuse its discretion in declining to reduce the special master's fee award retroactively based on Husband's changed employment situation.
CONCLUSION
¶38 For the foregoing reasons, we affirm the decree and the superior court's post-decree rulings, except that we vacate the revised language the superior court added to the decree in the January 31, 2019 minute entry detailed above, supra ¶ 14, and vacate the order denying Husband's motion to amend or for new trial relating to the $7,000 change in Wife's assets. We remand so that the superior court may hear Husband's evidence of his reimbursement claims accruing between March 1, 2018 and November 2, 2018, and so that it may specify the amount of Wife's increased equalization obligation and how she is to satisfy it. We award Husband his costs on appeal, upon compliance with Arizona Rule of Civil Appellate Procedure 21.