Stewart v. Stewart ( 2022 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
In re the Marriage of:
WILLIAM DAVID STEWART, Petitioner/Appellee,
v.
MARY STEWART, Respondent/Appellant.
No. 1 CA-CV 21-0442 FC
FILED 5-17-2022
Appeal from the Superior Court in Maricopa County
No. FN2018-093826
The Honorable Joan M. Sinclair, Judge
REVERSED AND REMANDED
COUNSEL
Horne Slaton PLLC, Scottsdale
By Sandra L. Slaton, Kristin M. Roebuck Bethell
Counsel for Petitioner/Appellee
Padish Law Group PLLC, Scottsdale
By James E. Padish, Erica Padish Conrad
Counsel for Respondent/Appellant
STEWART v. STEWART
Decision of the Court
MEMORANDUM DECISION
Judge Peter B. Swann delivered the decision of the court, in which Presiding
Judge Cynthia J. Bailey and Judge D. Steven Williams joined.
S W A N N, Judge:
¶1 In this dissolution action, the superior court awarded a
commingled account and certain business interests purchased therefrom to
the husband as his separate property. We reverse those awards and
remand for reallocation. Because the separate and community
contributions to the account were delineated, they retained their character
and the account should have been allocated accordingly. Further, because
there was no evidence of transmutation, the community had a proportional
interest in the investments funded by the account.
FACTS AND PROCEDURAL HISTORY
¶2 When William David Stewart (“Husband”) was a young
child, his family created a Fidelity account, with investment and money-
market sub-accounts, for his benefit under the Arizona Uniform Transfers
to Minors Act (“the Act”). Husband’s father acted as custodian of the
account during Husband’s childhood and continued to unilaterally control
the account even after Husband became an adult.
¶3 Husband married Mary Stewart (“Wife”) in November 2013,
when he was twenty-two and she was sixteen. During the marriage,
Husband’s father caused community funds to be deposited in the Fidelity
account on several occasions. Also during the marriage, and after the first
community deposit, Husband’s father used the account to purchase
interests in five businesses: Cotton Lane Group, LLC; Gulf Mobile Home
Park, LLC; Landings Resort, LLC; Sunshine RV Resort, LLC; and Sunny
Grove MHP, LLC. Wife was identified as a stakeholder alongside Husband
in the operating agreement and a tax document from Cotton Lane Group.
Tax documents from other of the businesses listed Husband only.
¶4 Husband and Wife separated in December 2017, and
Husband petitioned for dissolution in September 2018. The parties
disputed, among other things, whether the Fidelity account and the
business interests purchased therefrom were separate or community
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Decision of the Court
property. Husband retained an expert who opined that the business
interests were funded by Husband’s separate property because at the time
of each purchase, the majority separate-property portion of the account’s
total cash value exceeded the purchase price whereas the minority
community-property portion did not. Wife presented no expert testimony
but challenged Husband’s expert’s methodology and argued that the
commingling of separate and community property in the account
transmuted it, and the investments therefrom, to community property.
¶5 The superior court denied Wife’s motion in limine to preclude
the expert’s testimony, and he testified at trial. In the dissolution decree,
the court concluded that there was “no evidence to support a finding that
the Fidelity account was transferred to Husband,” that Husband’s expert
was credible, and that the account was not “entirely commingled.” The
court concluded that the account, and all the business interests except the
interest in Cotton Lane Group, were Husband’s separate property. The
court deemed the interest in Cotton Lane Group community property and
divided it equally between the spouses.
¶6 Wife appeals.
DISCUSSION
¶7 We review the superior court’s characterization of property
de novo. In re Marriage of Pownall, 197 Ariz. 577, 581, ¶ 15 (App. 2000).
¶8 Wife first contends that the superior court erroneously
determined that the Fidelity account was not transferred to Husband. We
deem that finding factually accurate but legally immaterial. The Act does
not, as Wife contends, describe an automatic age-based transfer to the
minor. It instead provides that the custodian “shall transfer” the property
to the minor when the minor becomes an adult. A.R.S. § 14-7670. Here, the
custodian failed to comply with that directive. But whether the custodian
relinquished control or not, the account always belonged to Husband—by
the terms of the Act, the account immediately and absolutely vested in
Husband at the time of its creation. See A.R.S. §§ 14-7659(A)(2) (providing
that “[c]ustodial property is created and a transfer is made” when money is
“paid or delivered to a . . . financial institution for credit to an account in
the name of the transferor . . . ‘as custodian for [a minor] under [the Act]’”),
14-7659(A)(2) (providing that the transfer “is irrevocable, and the custodial
property is indefeasibly vested in the minor”). Husband therefore brought
the account into the marriage as separate property, see A.R.S § 25-213(A),
and the superior court properly considered it in his dissolution action.
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¶9 Wife next contends that Husband’s expert failed to provide
“‘explicit tracing’ testimony sufficient to overcome the presumption that
the Fidelity account is a community asset due to the commingling of
community funds in it during the marriage.” We hold that the presumption
does not apply because the separate and community contributions to the
account are easily identifiable. But we reject the expert’s unfounded
conclusion that the separate property was the sole funding source of the
withdrawals.
¶10 “The mere fact that the property was commingled does not
cause it to lose its separate identity, as long as the separate property can still
be identified.” In re Marriage of Cupp, 152 Ariz. 161, 164 (App. 1986); see also
Noble v. Noble, 26 Ariz. App. 89, 95 (1976) (explaining that commingling
does not cause transmutation “so long as the funds remain traceable”).
Accordingly, when community and separate funds are commingled in one
account, “the entire fund is presumed to be community property unless the
separate property can be explicitly traced” and shown by its proponent “by
clear and satisfactory evidence.” Cooper v. Cooper, 130 Ariz. 257, 259 (1981)
(emphasis added) (citation omitted).
¶11 Here, because the dates and amounts of the separate-property
balance and community deposits were known, the community and separate
portions of the account are easily delineated. The superior court therefore
properly declined to conclude that the commingling transmuted the
account to community property. In view of the community deposits,
however, the court erred by concluding that the account was entirely
Husband’s separate property. Though the bulk of the account was separate
property, the portion attributable to the community deposits was
community property.
¶12 Husband’s expert properly recognized the separate and
community portions of the account. He anticipated, however, that
Husband would “testify that he intended these [business] investments to
be his sole and separate property.” Husband did not so testify—to the
contrary, he testified that his father unilaterally managed the account and
Husband was wholly uninvolved in the transactions. The business interests
were purchased from commingled funds, and there was no evidence that
the spouses parsed the funds for purposes of the purchases or agreed to a
transmutation. See Bender v. Bender, 123 Ariz. 90, 93 (App. 1979) (holding
that spouses may convey their separate or community interests to each
other by written agreement coupled with contemporaneous conduct
showing intent to convey). And though tax documents listed Husband and
not Wife as a stakeholder for several of the businesses, there is no evidence
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that either spouse directed those documents’ preparation. See Bourne v.
Lord, 19 Ariz. App. 228, 231 (1973) (holding that because wife’s name on
deed to trailer purchased with husband’s separate property was inserted
neither at husband’s direction nor with his knowledge, the form of the deed
did not alter the trailer’s separate-property status and was in any event
merely prima facie evidence of ownership). The expert gave the
community no credit for its contributions to the account, simply because
those contributions were relatively modest and insufficient to
independently cover the withdrawals, whereas the separate funds
comprised the majority of the account and were sufficient to cover the
withdrawals. The expert’s approach is neither compliant with law, logical,
or fair, and we refuse to endorse it.
¶13 Under Ariz. R. Evid. 702, expert opinions must be based on
reliable principles and methods reliably applied to the facts of the case.
Because the expert report in this case fails that basic test, the superior court
erred by accepting the expert’s opinion. The community had an interest in
the investments proportional to the community’s interest in the account
from which those investments were funded. See Horton v. Horton, 35 Ariz.
378, 381 (1929) (holding that when an asset is “purchased in part with
community funds and in part with separate funds, it is community
property to the extent and in the proportion that the consideration is
furnished by the community”).
¶14 We reject Husband’s argument that Wife waived a
proportional award by not arguing for such a result in the proceedings
below or on appeal. It is beyond dispute that Wife challenged the expert’s
opinion, and we must not limit ourselves to her specific arguments if that
would cause us to reach an incorrect result. See Liristis v. Am. Fam. Mut. Ins.
Co., 204 Ariz. 140, 143, ¶ 10 (App. 2002). We further note that waiver is a
procedural rule that we may forgo when justice requires. Id. at ¶ 11.
CONCLUSION
¶15 The superior court erred by failing to recognize the
community’s identifiable interest in the Fidelity account and the
investments therefrom in Gulf Mobile Home Park, Landings Resort,
Sunshine RV Park, and Sunny Grove MHP. We reverse the court’s
characterization of the account and those business interests 1 as entirely
1 At oral argument on appeal, Husband claimed that the court’s
characterization of the investment in Cotton Lane Group as community
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Husband’s separate property. We remand so that the court may award the
community’s share. In our discretion, we deny the parties’ competing
requests for attorney’s fees on appeal under A.R.S. § 25-324.
AMY M. WOOD • Clerk of the Court
FILED: AA
property gave Wife a windfall. But Husband did not cross-appeal. We
therefore do not disturb the superior court’s ruling regarding Cotton Lane
Group.
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