Recent Decisions From The Arizona Court of Appeals

Femiano v. Maust; 1 CA-CV 18-0582 FC (April 23, 2020)

In this case, Husband and Wife purchased a home during the marriage.  Because Wife’s credit was weak, the parties agreed to title the property in Husband’s name only, as his “sole and separate property.”  Wife also signed a “disclaimer deed,” disclaiming her past, present, or future interest in the home.  Despite the way the property was titled, the parties used community funds to pay the mortgage and other home improvement expenses.  The Court of Appeals reaffirmed prior case law holding that property acquired during marriage is presumed to be community property, and that a party can rebut that presumption only by clear and convincing evidence.  The Court concluded that Wife’s disclaimer deed constituted clear and convincing evidence that she intended Husband would own the home as his separate property.

Having concluded that the property was Husband’s, the Court addressed the issue of the marital community entitlement to compensation for the community funds used to improve the property during the marriage.  The Court rejected the trial court’s use of the Drahos formula to calculate the community’s “lien” on the home, which applies only to property one party owns separately prior to marriage.  Instead, the Court ruled, “when the community pays all costs associated with purchasing and improving the separate property, any appreciation in value and the resulting increase in equity is fully attributable to the community, and the community is thus entitled to an equitable lien for the full increase in equity.”  Wife was entitled to half of the increase in equity attributable to the monthly mortgage payments made during the marriage, plus half of the market appreciation during the marriage. 

There are a number of takeaways from this case:  First, the facts of this case may seem unusual, but the Moon Law Firm currently represents a client facing a remarkably similar situation.  Second, parties need to be very careful when considering whether to sign a disclaimer deed.  Signing a disclaimer deed before divorce is contemplated can have a significant impact on what the signing spouse receives if the marriage ever ends.  Third, even if one spouse disclaims his or her interest in a property, if community funds are used to improve that property, a community lien attaches and the disclaiming party may still be entitled to compensation for their share of the improvements. 

If you have an issue regarding a disclaimer deed you signed prior to or during marriage, please contact me to set up a consultation so we can discuss your options.