Brucklier v. Brucklier ( 2022 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
In re the Matter of:
JENNIFER RENEE BRUCKLIER, Petitioner/Appellee,
v.
MICHAEL J. BRUCKLIER, Respondent/Appellant.
No. 1 CA-CV 21-0106 FC
FILED 8-25-2022
Appeal from the Superior Court in Maricopa County
No. FC2018-051050
The Honorable Alison S. Bachus, Judge
AFFIRMED IN PART, VACATED IN PART, AND REMANDED
COUNSEL
Hallier Lawrence PLC, Phoenix
By Angela K. Hallier, Tabitha A. Jecmen
Co-Counsel for Petitioner/Appellee
Jones, Skelton & Hochuli PLC, Phoenix
By Eileen Dennis GilBride (argued)
Co-Counsel for Petitioner/Appellee
Berkshire Law Office PLLC, Tempe
By Keith Berkshire (argued), Kristi Reardon
Counsel for Respondent/Appellant
BRUCKLIER v. BRUCKLIER
Opinion of the Court
OPINION
Presiding Judge Paul J. McMurdie delivered the Court’s opinion, in which
Vice Chief Judge David B. Gass and Judge Angela K. Paton joined.
M c M U R D I E, Judge:
¶1 Michael J. Brucklier (“Father”) appeals from the decree
dissolving his marriage to Jennifer Brucklier (“Mother”). He argues the
court erred by finding that his separate investment property belonged to
the community, ordering the parties to pay their individual tax liability for
the last year of marriage rather than equally dividing the total tax liability,
and failing to offset his temporary child support overpayment toward his
temporary child support underpayment.
¶2 We hold that the court erred by characterizing real property
owned by Father’s LLC as community property. The property was Father’s
separate property because Father acquired an equitable interest before the
marriage even though he did not take legal title until after. And the use of
commingled funds did not transmute the real property’s character but
entitled the community to an equitable lien against the property for the
value of its contributions. The court also erred by apportioning the parties’
tax liability without evidence of the total amount of the debt, yielding a
potentially unequal division. Finally, we hold that when a final child
support order is different from the obligation under a temporary order and
thus creates over- or underpayments of support, the court must offset any
net over- or underpayment and account for the disparity when equitably
distributing the parties’ community property.
¶3 Thus, we remand for the court to establish a community lien
on the property and to otherwise conform the decree with this opinion.
FACTS AND PROCEDURAL BACKGROUND
¶4 Father was the sole member of MJB, an LLC used for real
estate investment. Father entered a contract to purchase a residential
investment property (“Falcon Ridge”) before the marriage. Father and MJB
acquired legal title to Falcon Ridge after the parties married in 2005. Mother
filed for dissolution in April 2018 when the parties had three minor
children. The court entered temporary orders requiring Father to pay child
support pending the dissolution proceedings.
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Opinion of the Court
¶5 Before the trial, the parties entered into a written agreement
resolving several issues, including legal decision-making and parenting
time, the allocation of most debts, and the disposition of MJB. See Ariz. R.
Fam. Law P. 69. The agreement confirmed MJB, as well as its assets and
debts, as Father’s separate property, “subject to the family court’s
resolution of [Mother’s] claims related thereto.” The court accepted the
agreement as fair and equitable. See id.
¶6 After the trial, the court entered a dissolution decree
concluding that an equal division of the community property was
appropriate to achieve equity. The court found that community and
separate funds had been commingled in the bank account held by MJB. As
a result, its assets, including Falcon Ridge, were community property. The
court ordered MJB’s financial account to be divided equally between the
parties and the real property sold with the proceeds also divided between
the parties after recognizing certain separate payments made by Father.
¶7 The court also found that Father was not entitled to
reimbursement for a tax garnishment imposed by the IRS that he paid with
separate funds after service of the dissolution petition. Instead, the court
ordered the parties to bear their individual tax liability for the year.
¶8 The court entered permanent child support orders that
modified the temporary child support, causing over- and underpayments
for certain periods. The court did not, however, offset the overpayments
toward the underpayments and instead entered a past-support judgment
against Father for the underpayments. See A.R.S. § 25-320(B).
¶9 Father moved to amend the decree, arguing the court erred
by finding that Falcon Ridge was community property, failing to credit
Father for paying more than his share of the 2017 community tax liability,
and by failing to offset the temporary child support overpayment toward
the underpayment. The superior court denied the motion. Father appealed,
and we have jurisdiction under A.R.S. § 12-2101(A)(1), -120.21(A)(1), and
Arizona Rule of Family Law Procedure 78(c).
DISCUSSION
¶10 We apply de novo review to the court’s characterization of
assets or debts as community or separate, but we review the court’s division
of those assets and debts for an abuse of discretion. Hammett v. Hammett,
247 Ariz. 556, 559, ¶ 13 (App. 2019). We review child support awards for an
abuse of discretion. Birnstihl v. Birnstihl, 243 Ariz. 588, 590, ¶ 8 (App. 2018).
A court abuses its discretion when the record lacks competent evidence to
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Opinion of the Court
support its findings. Engstrom v. McCarthy, 243 Ariz. 469, 471, ¶ 4 (App.
2018). And we defer to the superior court’s factual findings unless they are
clearly erroneous. Id.A. The Superior Court Erred by Finding that Falcon Ridge Belonged
to the Community.
¶11 Before the marriage, Father formed MJB to invest in
residential properties. Father was MJB’s only member. Father entered a
contract to purchase Falcon Ridge and paid $50,000 in earnest money before
the marriage but did not close on the property until after. Along with the
$50,000 earnest deposit, Father paid for Falcon Ridge using the proceeds
from the sale of two of MJB’s other properties (acquired before the marriage
and thus Father’s separate property) and a loan obtained in his name only.
See Cooper v. Cooper, 130 Ariz. 257, 259–60 (1981); Potthoff v. Potthoff, 128 Ariz.
557, 562 (App. 1981) (A mere change in the form of the property does not
change the character of the property.).
¶12 Mother presented evidence that Father used community
funds to pay some of MJB’s expenses, including mortgage payments,
maintenance, and improvement expenses for Father’s (MJB’s) separate real
properties. Father asserted that MJB’s separate funds could be explicitly
traced, and the community was owed about $315,000 as an equitable lien
against Falcon Ridge.
¶13 Mother argued that community funds had been used to
increase the equity in the real properties held by MJB during the marriage
and that Father’s analysis of the community’s contributions failed to
address the properties’ increase in value transferred to properties acquired
by MJB through the like-kind exchange under 26 U.S.C. § 1031.1 She argued
that Father failed to explicitly trace the transferred value, so the court
should presume that the acquired properties were bought with community
funds and thus community property.
¶14 The court found that community funds had been expended
toward increasing the value of Falcon Ridge because Father’s separate
funds had been commingled with community funds in MJB’s bank account.
1 Under 26 U.S.C. § 1031(a)(1), “[n]o gain or loss shall be recognized
on the exchange of real property held for productive use in a trade or
business or for investment if such real property is exchanged solely for real
property of like kind which is to be held either for productive use in a trade
or business or for investment.”
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Opinion of the Court
Based on when the legal title was transferred to Father and the use of
community funds, the court found Falcon Ridge to be community property
and ordered the house to be sold. The court ordered the sale proceeds
divided between the parties.2
¶15 Father argues that the court erred by finding Falcon Ridge
was acquired during the marriage. He also contends that even if we affirm
the superior court’s finding that Falcon Ridge was acquired during the
marriage, we should hold that the court erred by failing to find that Father
rebutted the community property presumption with clear and convincing
evidence.
1. The Court Erred by Finding that Falcon Ridge Was
Community Property Because Father Possessed an Equitable
Interest in the Property Before the Marriage.
¶16 A basic tenet of community property law is that property
acquires its character as community or separate depending on its owner’s
marital status at the time of acquisition. Lawson v. Ridgeway, 72 Ariz. 253,
261 (1951). “Time of acquisition” refers to the time at which the right to
obtain title occurs, not the time when legal title is conveyed. Potthoff, 128
Ariz. at 561; Hollingsworth v. Hicks, 258 P.2d 724, 729–30 (N.M. 1953); Rivera
v. Hernandez, 441 S.W.3d 413, 420 (Tex. Ct. App. 2014) (Characterization of
property as either community or separate is determined at the inception of
title to the property. The inception of title occurs when a party first has a
claim to the property under which title finally vests.). Stated another way,
the status of title, as community or separate, is determined by the status of
the initial interest that matures into the full title. Fisher v. Fisher, 383 P.3d
840, 843 (Idaho 1963). Under this rule, property in which one spouse has
acquired an equitable interest before marriage is separate property, though
the title is not perfected until after the marriage.
¶17 Father claims that before the marriage, he signed a purchase
contract for Falcon Ridge and paid $50,000 earnest money. According to the
closing document submitted by Father, the remaining down payment of
$418,716 was paid after the marriage from the sale of Father’s premarital
2 The court ordered an equal division of the proceeds subject to
Father’s reimbursement for mortgage payments made with his separate
funds after the petition for dissolution had been served as well as the
earnest deposit. The court’s sale order did not account for the funds used
through the like-kind § 1031 exchanges.
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Opinion of the Court
interest in land resulting in a § 1031 exchange. And the title to Falcon Ridge
was put in Father’s sole name at closing.
¶18 While finding that Father had paid the $50,000 earnest money
before the marriage, the court still found Falcon Ridge was community
property. The court based its conclusion partly on the fact that the “Falcon
Ridge property was not actually purchased until after the parties were
married. Father bought the property in March 2006 [closing date] and
executed a warranty deed to MJB.” The court’s conclusion is error.
¶19 When Father paid the $50,000 in earnest money before the
marriage, he acquired an equitable interest in Falcon Ridge. See Tucson Fed.
Savs. & Loan Ass’n v. Sundell, 106 Ariz. 137, 141 (1970) (A purchaser acquired
an interest in land when she paid earnest money.); Rigoli v. 44 Monroe Mktg.,
LLC, 236 Ariz. 112, 117, ¶ 17 (App. 2014) (A purchaser acquires equitable
interest when the purchaser enters a binding contract and renders
payment.). That Father’s equitable interest did not mature into a title to
Falcon Ridge until after the marriage does not alter that he acquired the
property before marriage. Potthoff, 128 Ariz. at 561. Falcon Ridge was thus
Father’s separate property at the time of acquisition.3 See Lawson, 72 Ariz.
at 261.
¶20 The court also concluded that Falcon Ridge was community
property because mortgage payments, maintenance, and improvement
costs were paid with commingled funds, noting
separate and community property were commingled, and
[Father] has failed to show by clear and satisfactory evidence
that the commingled funds of MJB are separate. Thus, the
3 Even assuming Father (MJB) acquired Falcon Ridge after the
marriage, Father rebutted the community presumption. See A.R.S.
§ 25-211(A); Nace v. Nace, 104 Ariz. 20, 22–23 (1968). Father paid more than
half the purchase price outright with separate funds (his earnest money
deposit) and other separate property (§ 1031 exchange credit). He financed
the balance of the price with separate debt (a mortgage in his name alone).
And he took title to the property in his name alone before transferring it to
MJB. Despite Mother’s argument to the contrary, the only indication was
that Father acquired Falcon Ridge as his separate property, providing clear
and convincing evidence to rebut the community presumption. See Nace,
104 Ariz. at 22–23.
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Opinion of the Court
Court concludes that the assets [financial account and Falcon
Ridge] of MJB are community in nature.
¶21 This was also error as it relates to real property like Falcon
Ridge. Real property is easily traceable. It is not fungible. Commingling can
transmute financial accounts but not tangible assets like real estate. See
Potthoff, 128 Ariz. at 562. In Potthoff, we held that a commingling theory
would not support a finding that real property was transmuted to
community property. Id. We explained that commingling “is simply not
applicable to real property because of the ‘unique’ nature of that type of
property. You cannot mix Black Acre with White Acre and obtain Gray
Acre.” Id. Because the real property was traceable, the court had a duty to
award it to Father and calculate an equitable lien for the community’s
contribution. See Nace, 104 Ariz. at 22.
2. The Community Is Entitled to an Equitable Lien Equal to
the Increase in Equity Resulting from Community Payments
Reducing the Mortgage Principal and the Amount the Community
Spent on Improvements.
¶22 The community acquires an equitable lien against the
separate property of one spouse when it contributes capital, causing the
property to increase in value. Valento v. Valento, 225 Ariz. 477, 481, ¶ 12
(App. 2010). An equitable lien’s existence and value encompass mixed
questions of fact and law. Id. ¶ 11.
¶23 The parties both testified that payments were made on MJB’s
real estate mortgages using the community checking account and MJB’s
checking account containing commingled funds. We cannot say that the
court—after explicitly finding Mother’s expert’s testimony reliable and
persuasive and questioning the tracing performed by Father’s
expert—erred by concluding community funds had been expended toward
increasing the value of Falcon Ridge. But because Falcon Ridge is Father’s
separate property, the court erred by ordering its sale. We, therefore, vacate
the court’s order and remand for the superior court to award the
community an equitable lien equal to the amount spent increasing the
home’s equity from the community and commingled accounts. See Drahos
v. Rens, 149 Ariz. 248, 249–50 (App. 1985).
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B. The Superior Court Erred by Denying Father’s Request for
Reimbursement for a Tax Garnishment Imposed on his Separate
Earnings after Service of the Petition.
¶24 Father filed a separate income tax return for 2017. The IRS
assessed around $15,000 as a penalty for unpaid income taxes that Father
asserts related to community income for the tax year 2017. Father’s separate
earnings were garnished, and at the trial, he requested that Mother
reimburse him for her half of the community obligation. See Bobrow v.
Bobrow, 241 Ariz. 592, 596, ¶ 19 (App. 2017) (A spouse’s payments toward
community debt must be accounted for in an equitable property
distribution.). Mother offered no evidence about her tax situation for 2017.
¶25 After the trial, the court found that without Mother’s
knowledge, Father “chose to claim all three children and file a separate tax
return,” and the “separate tax returns likely caused the parties to pay more
in taxes than if they had filed jointly.” It ruled that “[i]n equity, and based
on the evidence presented, the Court will order that both parties bear
whatever liability he/she incurred for tax year 2017 without offset to the
other party.”
¶26 Father asserts the court erred when it assigned to him the
community tax debt as a matter of equity when the court had no evidence
about Mother’s tax liability. On the other hand, Mother argues the court
was within its discretion to apportion the community debt, even unequally,
because the division was equitable.
¶27 The court erred by making an equitable apportionment based
on the finding that Father acted without Mother’s knowledge in accruing
the debt. Debts incurred during marriage are presumed to be community.
Schlaefer v. Fin. Mgmt. Serv., Inc., 196 Ariz. 336, 339, ¶ 10 (App. 2000).
Generally, either spouse may incur debt unless one of the narrow
exceptions applies. See A.R.S. § 25-215(D). For this reason, Mother’s
knowledge and consent to Father’s filing status is irrelevant.
¶28 Similarly, the court erred by finding, without supporting
evidence, that Father’s actions likely increased the community tax burden
and by determining, again without supporting evidence about Mother’s tax
liability for the year, that assigning liability to each spouse was equitable.
While a court has discretion in how to allocate individual assets and
liabilities to determine an equitable property division, A.R.S. § 25-318(A)
requires the court to “divide the community, joint tenancy and other
property held in common equitably, though not necessarily in kind, without
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regard to marital misconduct.” (Emphasis added.) See also Oppenheimer v.
Oppenheimer, 22 Ariz. App. 238, 244 (1974) (Fault “should only be
considered to the extent that there are excessive or abnormal expenditures,
destruction, concealment or fraudulent disposition of community, joint
tenancy and other property held in common.”); Hatch v. Hatch, 113 Ariz.
130, 135 (1976) (Hays, J. dissenting) (The legislature’s enactment of A.R.S.
§ 25-318 puts to rest the question of whether fault is to be considered in the
community property distribution.).
¶29 The court’s finding that Father’s filing “likely caused the
parties to pay more in taxes” finds no support in the record, considers fault
for the debt in violation of A.R.S. § 25-318(A), and is based on speculation
about Mother’s tax situation. Likewise, the order contradicts its
contemporaneous conclusion that “an equal division of community
property is appropriate to achieve equity.” The court had the discretion to
determine whether an unequal property division was equitable or find
Father wasted community resources under A.R.S. § 25-318(C). But it did
neither.
¶30 The court did not have the authority to award community tax
debt solely to Father on these facts. As a result, we reverse and remand for
an equitable division of the community’s 2017 tax debts.
C. The Superior Court Erred by Failing to Appropriately Credit
Father for Child Support Previously Paid.
¶31 During the dissolution proceedings, the court imposed
temporary child support. At the trial, Mother requested a retroactive child
support adjustment. The court granted Mother’s request and awarded child
support effective August 1, 2018, creating a support underpayment of
$3,855 for August to October 2018. The court also found that Father
overpaid $6,252 in support between November 2018 and the end of 2020.
Father asked the court to offset the overpayment amount toward the
underpayment. But citing A.R.S. § 25-527, the court determined that it could
not order reimbursement for the overpayment until after Father’s child
support obligation terminated when the children reached majority.
¶32 Although the court’s rationale is accurate for overpayments
above a final child support order, the decree must account for over- and
underpayments from temporary orders, including offsets.
¶33 “An obligor whose obligation to pay support has terminated
may file a request for reimbursement against the obligee for support
payments made in excess of the amount ordered.” A.R.S. § 25-527(A). The
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statute encapsulates the rule that child support overpayments cannot be
credited against future support obligations. Pellar v. Pellar, 443 N.W.2d 427,
429 (Mich. 1989); see also 7 A.L.R.6th 411 (2005). The Michigan Supreme
Court explained the rationale for the rule:
[I]t would be possible for a parent, who is obligated to pay
support, to build up a substantial credit, then suddenly refuse
to make support payments for several weeks, months, or even
years, thus thwarting the court’s purpose in setting the
payments at certain specified intervals, that of providing
regular, uninterrupted income for the benefit of that parent’s
children, who are in the custody of another. The regularity
and continuity of court decreed support payments are as
important as the overall dollar amount of those payments.
Pellar, 443 N.W.2d at 430 (quoting Haycraft v. Haycraft, 375 N.E.2d 252 (Ind.
1978)). Even before adopting A.R.S. § 25-527, Arizona adhered to this rule.
Corbett v. Corbett, 116 Ariz. 350, 352 (App. 1977) (Absent an agreement
between the parties, money previously paid over an obligation may not be
used to offset future support payments.).
¶34 But the rule does not apply to temporary orders issued under
A.R.S. § 25-315. A temporary order under A.R.S. § 25-315(F)(1) “does not
prejudice the rights of the parties or of any child that are to be adjudicated
at the subsequent hearings in the proceeding.” Other jurisdictions likewise
recognize an exception to the rule when a retroactive adjustment of child
support results in an immediate overpayment, as happened here. See, e.g.,
Tompkins Cnty. Support Collection Unit ex rel. Chamberlain v. Chamberlain, 305
A.D.2d 813, 814 (N.Y. App. Div. 2003); Ogard v. Ogard, 808 P.2d 815, 816–17
(Alaska 1991); Lickle v. Lickle, 606 So. 2d 391, 392 (Fla. Dist. Ct. App. 1992).
And offsetting an overpayment based on a temporary order does not inhibit
“[t]he regularity and continuity of court decreed support payments,” Pellar,
443 N.W.2d at 430, because it does not impact future support payments.
¶35 Father was entitled to an offset. We direct the superior court
to correct the error on remand and offset any overpayment when
determining the equitable property disbursement.
ATTORNEY’S FEES
¶36 Both parties request an award of attorney’s fees and costs.
Under A.R.S. § 25-324(A), a court may award reasonable attorney’s fees
after considering the financial resources of both parties and the
reasonableness of each party’s positions throughout the proceedings. We
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decline to award attorney’s fees. As the prevailing party, we award Father
costs upon compliance with ARCAP 21.
CONCLUSION
¶37 We vacate and remand those portions of the decree discussed
in this opinion for further proceedings. The dissolution decree is otherwise
affirmed.
AMY M. WOOD • Clerk of the Court
FILED: AA
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