Separate Property and Arizona Marital Community Equitable Lien Rights
In Weeks v Weeks, Division One of the Arizona Court of Appeals addressed the marital community’s equitable lien against separate property of one spouse. The opinion is a memorandum decision and it is therefore not precedential; it may however be cited for persuasive value subject to various limitations.
April and David Weeks were married in March 2004. In June 2004, April purchased a lot with funds ($30,000) received as a gift from her grandparents and David signed a disclaimer deed acknowledging the lot as April’s sole and separate property.
April borrowed funds to construct a home on the lot, and upon completion of the construction, April obtained permanent financing in the amount of $141,000. Both April and David as well as their children lived in the home until July 2014 when April filed for divorce.
It was undisputed that the community paid the mortgage and all expenses related to the home from October 2004 until July 2014. It was also undisputed that the unpaid mortgage balances at the time the petition was served was $121,341. The only documented appraisal of the home indicated a value of $275,000 as of October 2014.
Importantly, in her pretrial statements, April ignored the issue of an equitable lien and requested that the home be awarded to her. In his pretrial statement, David claimed an equitable interest in the home.
At trial, David argued that the value of the equitable lien should be $123,659. Calculated as $275,000 appraisal value less the outstanding mortgage balance of $121,341 and the initial $30,000 purchase. While April argued that the equitable lien should be limited to the amount of the mortgage reduction during marriage which was just $18,518.48.
Following trial, the Court essentially adopted David’s position and found that the equitable lien was $122,518.48 and that he was entitled to one-half or $61,259.24.
On appeal, the Court recognized that the well-recognized “value-at-dissolution” formula is typically utilized to determine the value of the community lien but April ignored that approach at trial. She failed to acknowledge the existence of an equitable lien and argued only for a reduction of the balance of the mortgage. Effectively, she failed to develop any argument for application of the Drahos formula, which was raised – for the first time – on appeal. Therefore, the Court refused to address the issue.
The Court noted that even if it wished to address the issue, April had not provided the necessary evidence to permit a Drahos calculation. The trial court’s calculation was affirmed.
The lesson is clear. Make your argument and provide the necessary evidence to support your argument. Omitting an issue from a pretrial statement and essentially ignoring the opponent’s valid argument about an equitable lien may (and in this case did) lead to a more negative result than an application of the well-recognized Drahos formula.