Prescott v. Prescott ( 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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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:
ROSE ANN PRESCOTT, Petitioner/Appellant,
v.
ROBERT LINCOLN PRESCOTT, Respondent/Appellee.
No. 1 CA-CV 20-0393 FC
FILED 4-7-2022
Appeal from the Superior Court in Maricopa County
No. FN2018-001797
The Honorable Justin Beresky, Judge
REVERSED AND REMANDED WITH INSTRUCTIONS IN PART;
AFFIRMED IN PART
COUNSEL
Alexander R. Arpad Attorney at Law, Phoenix
By Alexander R. Arpad
Co-Counsel for Petitioner/Appellant
Joe M. Romley P.C., Phoenix
By Joe M. Romley
Co-Counsel for Petitioner/Appellant
Fennemore Craig, P.C., Phoenix
By Timothy Berg, Emily Ward
Co-Counsel for Respondent/Appellee
Rowley Chapman & Barney, LTD., Mesa
By Joshua R. Boyle
Co-Counsel for Respondent/Appellee
MEMORANDUM DECISION
Presiding Judge D. Steven Williams delivered the decision of the court, in
which Judge Jennifer B. Campbell and Judge James B. Morse Jr. joined.
W I L L I A M S, Judge:
¶1 Rose Ann Prescott (“Wife”) appeals from the superior court’s
orders incorporating the parties’ Arizona Rule of Family Law Procedure 69
Agreement (the “Agreement”) into the decree of dissolution without first
conducting an evidentiary hearing to determine whether the Agreement
was fair. For the following reasons, we reverse and remand, in part, with
instructions for the superior court to hold an evidentiary hearing to
determine the substantive fairness of the Agreement, but otherwise affirm
the remainder of the decree.
FACTUAL AND PROCEDURAL HISTORY
¶2 In May 2018, Wife petitioned for dissolution of her 27-year
marriage to Robert Lincoln Prescott (“Husband”). The marital community’s
primary asset is Cyrus Strong Investment Co., LLC (“Cyrus Strong”), a
holding company that owns a 70 percent interest in another company, M.C.
Davis Co., LLC, which owns Spin Magnetics, Inc. (collectively, the
“community business”). In 2001, Wife started working for the community
business in various capacities. In June 2017, she began working from home
part-time performing administrative duties, earning $80,000 annually, until
May 2018, when Husband terminated her employment.
¶3 Before the temporary orders hearing, Husband agreed to pay
all expenses related to the marital residence where Wife lived; Wife’s car,
life, and health insurance; the minimum payments on the community credit
cards; and the parties’ estimated income taxes. After a hearing, the superior
court awarded Wife temporary spousal maintenance of $4,000 per month
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in addition to Husband continuing to pay most of the expenses related to
the marital residence and Wife’s car and health insurance.
¶4 The parties went to mediation in December 2019, where they
reached an Agreement that was reduced to writing and signed by both
parties in accordance with Rule 69. As relevant to the appeal, the parties
agreed that Husband would buy out Wife’s interest in the community
business. As payment for Wife’s interest, she would receive the profits from
the sale of a commercial property in Florida owned by the community
business (estimated to be $950,000, less her share of any capital gains tax
owed) and a $107,000 equalization payment from Husband. The parties also
agreed to (1) sell the marital residence with Husband paying all expenses
related to the residence, subject to reimbursement upon the sale of the
house; (2) split the remaining sales proceeds equally, with Husband using
his share to pay the equalization payment; (3) equally divide the
community portion of the retirement assets; and (4) equally divide “the
funds in the MCP account SOS ending in 2969.” The Agreement also
assigned various other bank accounts to each party. The Agreement did not
assign a value to any of these assets, other than the estimated value of the
commercial property. The parties each received various vehicles of
unspecified values. Wife waived her right to spousal maintenance. And the
parties agreed to amend their previously filed 2017 and 2018 federal and
state income taxes to file jointly and to share equally in any tax refunds. The
parties also agreed to file jointly in 2019 and to share equally in any tax
liability.
¶5 After Husband lodged the Agreement, Wife moved the
superior court to determine its enforceability, arguing the court had an
independent obligation under A.R.S. § 25-317(B) to determine if the
Agreement was fair. Wife argued the court could not make that
determination based upon the Agreement itself because it awarded the
community business to Husband without stating its value. Wife argued she
was to receive approximately $1 million for her share of the community
business, but the business valuation report found the fair market value was
between $3,428,000 and $4,088,000 as of September 17, 2019, and there was
no reason to discount her interest. According to Wife, the waiver of spousal
maintenance was also unfair because she qualified for support under
§ 25-319(A) and was entitled to an award of $6,000 a month based on the
factors in § 25-319(B). Finally, Wife argued that requiring her to file joint tax
returns for 2017, 2018, and 2019 was unfair because she may be liable for
substantial taxes, interest, and penalties as a result of Husband’s
questionable conduct.
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¶6 Husband countered that Wife could not challenge the
Agreement because she entered it freely and on the advice of counsel. He
also argued the division of assets need not be exactly equal to be fair.
Husband argued that Wife voluntarily waived spousal maintenance and,
in any event, would receive nearly $2 million in liquid assets, not including
her share of his pension, which was sufficient to provide for her needs. As
for the tax returns, Wife had counsel to advise her of the legal requirements
for filing, so any misunderstanding of the mediator’s statements was not
grounds for rejecting the Agreement.
¶7 Without holding an evidentiary hearing, the superior court
found the Agreement complied with Rule 69 and was presumed valid
because Wife failed to show any defect or show that the less than equal
division of assets was unfair. The court adopted the Agreement and signed
a decree incorporating it. Wife timely appealed.1 We have jurisdiction
under Article 6, Section 9, of the Arizona Constitution and A.R.S.
§ 12-2101(A)(1)-(2).
DISCUSSION
¶8 Wife argues the superior court erred by adopting the
Agreement without conducting an evidentiary hearing to determine
whether the division of the community business was substantively fair. We
review the superior court’s property allocation and spousal maintenance
award for an abuse of discretion. Hutki v. Hutki, 244 Ariz. 39, 42, ¶ 14 (App.
2018); Gutierrez v. Gutierrez, 193 Ariz. 343, 348, ¶ 14 (App. 1998). The
enforceability of a settlement agreement is a mixed question of law and fact,
which we review de novo. Buckholtz v. Buckholtz, 246 Ariz. 126, 129, ¶ 10
(App. 2019). Wife also contends the denial of an evidentiary hearing
deprived her of due process. We review due process claims de novo. Mack
v. Cruikshank, 196 Ariz. 541, 544, ¶ 6 (App. 1999).
¶9 Parties may enter into a settlement agreement to resolve
property allocation and spousal maintenance in a dissolution proceeding.
A.R.S. § 25-317(A). The terms of an agreement are binding on the court
“unless it finds, after considering the economic circumstances of the parties
and any other relevant evidence produced by the parties, on their own
motion or on request of the court, that the separation agreement is unfair.”
1 The decree did not include Rule 78(c) language, but the superior court
later entered a nunc pro tunc order amending the decree to include a
certification of finality under Rule 78(c). Wife filed an amended notice of
appeal from that order.
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A.R.S. § 25-317(B); see also Buckholtz, 246 Ariz. at 128, ¶ 1. Courts are not
required to conduct a hearing to determine if the agreement is fair if it is
possible to make that determination based on the agreement itself or from
the record. Hutki, 244 Ariz. at 44-45, ¶¶ 29-31. However, the court must hold
a hearing when there are “plainly disputed facts on the question of the
fairness of the agreement, and the court was presented [with] no evidence
as to the extent of the community assets.” Sharp v. Sharp, 179 Ariz. 205, 210
(App. 1994).
¶10 Husband contends the superior court properly approved the
Agreement without a fairness hearing because Wife failed to present
evidence of a factual dispute. He argues that Wife cannot create a factual
dispute that would warrant a fairness hearing based on mere assertions.
Husband cites Chalmers v. Chalmers, 1 CA-CV 18-0287 FC, 2019 WL 2651064,
*4, ¶ 21 (Ariz. App. June 27, 2019),2 where the husband argued the parties’
settlement agreement unfairly awarded part of his separate property to the
wife and failed to address her alleged waste. This court held the superior
court was not required to hold a fairness hearing because the husband
failed to provide evidence that he actually had any separate property and
offered no evidence of waste. Id. Chalmers also concluded that no hearing
was required because “the Agreement itself contained ample evidence from
which the [superior] court could find it fair and equitable.” Id. at ¶ 22. Thus,
we must consider whether the Agreement and the record here contained
sufficient information for the superior court to determine that the
admittedly unequal property allocation was not unfair.
I. Community Business
¶11 On appeal, Husband contends the superior court properly
found the allocation of the community business was fair because the parties
agreed the value of the community business was $2 million, or $1.4 million
given Cyrus Strong’s seventy-percent interest. The Agreement contains no
such statement. The Agreement awards Wife approximately $1 million for
her share of the community business but does not state the total value of
the community business or state what method of valuation was used to
determine the $1 million payment for Wife’s share. Husband
acknowledged that an unequal allocation might be fair because Wife
received liquid assets and he was awarded the community business itself,
2 Pursuant to Arizona Supreme Court Rule 111(c)(1)(C), memorandum
decisions issued after January 1, 2015, may be cited “for persuasive value”
if no published opinion adequately addresses the issue and if it is not a
depublished opinion.
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which had inherent risks. This suggests the community business might
have actually been valued at more than $2 million but reduced based on the
risk Husband assumed. However, Wife argued there was no valid reason
to discount the fair market value stated in the business valuation report
because the business valuation relied on an asset valuation and did not
value the community business’ profitability on a going concern value.
¶12 Given that the parties disputed the total value of the
community business, and neither the record nor the Agreement provide
evidence of the value of the community business upon which the court
could rely to determine that the Agreement was not unfair, this case is
distinguishable from Hutki, 244 Ariz. at 45, ¶¶ 30-32, and Chalmers,
1 CA-CV 18-0287 FC, at *4, ¶ 22. In Hutki, 244 Ariz. at 45, ¶¶ 30-32, the
record contained other evidence from which the court could determine the
agreement was fair. Similarly, Chalmers, 1 CA-CV 18-0287 FC, at *4, ¶ 22,
referred to “ample evidence” in the agreement itself showing it was fair.
Conversely, the Agreement here does not state that the parties agreed to
compromise any dispute regarding the nature of their interest in the
community business, nor were there pretrial statements or other evidence
in the record showing the value of the community business interests.
¶13 Admittedly, Wife did not attach the business valuation report
to her motion in support of her claim that allocation of the community
business was unfair. But because the pleadings contained “plainly
disputed” explanations for the business valuation report and resulting
allocation, the superior court necessarily had to weigh the parties’ opposing
assertions and make credibility determinations to reach the conclusion that
the Agreement was not so unfair as to require the court to reject it. See Sharp,
179 Ariz. at 210. Thus, a hearing was necessary.
¶14 To decide this question without taking evidence is also
inconsistent with due process. “[D]ue process requires the court to allow
parties a reasonable opportunity to present testimony whenever resolution
of a material contested issue hinges on credibility.” Volk v. Brame, 235 Ariz.
462, 466, ¶ 14 (App. 2014). Husband contends that Wife was afforded an
opportunity to be heard through her written objections to the Agreement.
However, the court cannot assess credibility on documents alone. Id. at 464,
¶ 2. As explained in Volk, when factual disputes exist, “the court must
afford the parties an opportunity to present sworn oral testimony, and may
not rely solely on avowals of counsel.” Id. at ¶ 1.
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II. Spousal Maintenance
¶15 Regarding spousal maintenance, Husband contends no
hearing was necessary because he did not dispute the facts in Wife’s motion
and because sufficient evidence existed in the record to support the finding
that Wife’s waiver of spousal maintenance was not unfair.
¶16 In ordering temporary spousal maintenance, the superior
court found that Wife was of an age that may preclude her from earning
sufficient income to support herself. See A.R.S. § 25-319(A)(4). Thus, the
record shows that Wife qualified for spousal maintenance. But Husband
contends Wife received sufficient property under the Agreement to support
herself; thus, the waiver of spousal maintenance was not unfair. See A.R.S.
§ 25-319(B)(9) (in determining the amount and duration of maintenance,
courts shall consider the financial resources awarded to the party seeking
support).
¶17 To determine that the waiver of spousal maintenance was not
unfair, the superior court had to consider, inter alia, whether Wife received
sufficient property to provide for her reasonable needs for her lifetime. See
A.R.S. § 25-319(B)(9); compare In re Marriage of Cotter & Podhorez, 245 Ariz.
82, 86, ¶ 10 (App. 2018) (for purposes of § 25-319(A)(1), “sufficient property
means property that, standing alone, can provide for a spouse’s reasonable
needs during his or her lifetime”). The Agreement awarded both parties
multiple vehicles; equally divided the proceeds from the sale of the marital
residence, the community portion of the retirement assets, and the MCP
account ending in 2969; and awarded other bank accounts to either
Husband or Wife. But the Agreement did not set forth the value of these
assets. Without assigning a corresponding value to the assets, the court
could not determine how much property Wife would ultimately receive.
¶18 Although Husband claims Wife received $2 million in assets,
nothing in the Agreement or the record supports this assertion. The exhibits
at the temporary orders hearing show the value of some bank accounts but
not all, and there is little information in the record as to the equity in the
marital residence. Furthermore, even if Wife was to receive approximately
$1 million for her interest in the community business, she had to pay half
of any capital gains taxes due on the sale proceeds from the Florida
property and purchase another residence. And although the court could
consider both the principal and interest of the retirement accounts in
determining the sufficiency of Wife’s property because Wife was 62 years
old and eligible to withdraw from the retirement accounts without penalty,
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see 26 U.S.C. § 72(t)(2)(A)(i), nothing in the record or the Agreement showed
how much she could expect to receive.
¶19 Additionally, the parties’ financial affidavits, contained in the
record, showed a vast disparity in income. See A.R.S. § 25-319(B)(5) (court
shall consider the parties’ comparative financial resources in determining
amount and duration of support award). The record also contains evidence
of the parties’ lengthy marriage, Wife’s age, and high-school education.
Each factor supports Wife’s claim that the waiver of spousal maintenance
was unfair. See A.R.S. § 25-319(B)(2), (3), (10) (in determining amount and
duration of support award, the court shall consider the duration of the
marriage, age, and the time needed to acquire sufficient training or
education for the party seeking support to find appropriate employment).
Given that these factors weigh in favor of awarding at least some spousal
maintenance, there was a plainly disputed factual issue as to the fairness of
Wife’s waiver of spousal maintenance that warranted a hearing.
III. Joint Income Tax Returns
¶20 Wife also argues it was unfair to require her to sign joint tax
returns from 2017, 2018, and 2019. As for tax years 2018 and 2019, Wife
asserted it was unfair to hold her liable for one-half of the joint income tax
liability because she did not receive one-half of the income in those years.
Wife’s employment terminated in May 2018, and in October 2018, she began
receiving $4,000 per month in temporary spousal maintenance while
Husband also paid Wife’s car and health insurance and expenses related to
the marital residence each month. Husband, on the other hand, earned over
$30,000 a month according to his 2018 financial affidavit. In 2019, Wife
received the same $4,000 in monthly spousal maintenance plus Husband
continued to pay Wife’s car and health insurance, as well as the majority of
expenses for the marital residence. Yet under the Agreement, Wife was
obligated to pay one-half of the estimated $95,000 income tax liability for
2019. Because there was no explanation for this seemingly unfair tax
burden, the court was required to conduct a hearing to determine whether
the provision that Wife was equally liable for the parties’ joint income in
2018 and 2019 was unfair.
¶21 Because the parties were still married and living together in
2017, presumably Wife received the benefit of the parties’ joint income that
year. Nothing in the record or Agreement shows that it was unfair to
require Wife to file jointly for tax year 2017.
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¶22 Wife also argued she might face financial and criminal
liability and penalties if she was required to sign joint returns. These claims
are speculative and not supported by anything in the record. In contrast,
the record sufficiently demonstrated a genuine factual dispute as to the
fairness of the property allocation, spousal maintenance waiver, and the
2018 and 2019 tax return provisions. The court did not abuse its discretion
by adopting the provision in the Agreement requiring Wife to sign joint tax
returns for tax year 2017.
IV. Attorneys’ Fees
¶23 Wife requests an award of her attorneys’ fees and costs on
appeal based on Husband’s superior financial resources. See A.R.S.
§ 25-324(A). Without setting forth a factual basis, Husband requests an
award of fees under A.R.S. §§ 25-324 or 12-341.01. After considering the
financial resources and the reasonableness of the parties’ positions, we
grant Wife’s request for attorneys’ fees upon compliance with Arizona Rule
of Civil Appellate Procedure 21. As the prevailing party, Wife is also
awarded her costs on appeal. See A.R.S. § 12-342.
CONCLUSION 3
¶24 The superior court erred by entering a decree that adopted the
parties’ Rule 69 Agreement without first granting Wife’s request for a
hearing to determine the fairness of the Agreement. Accordingly, we
remand with instructions for the court to conduct a fairness hearing on the
Agreement as a whole (because there is no severability clause contained
within the Agreement). We affirm the decree in all other respects.
AMY M. WOOD • Clerk of the Court
FILED: AA
3This court recently received an inquiry from one of the parties regarding
the status of this matter. With the issuance of this decision, the court takes
no further action on the inquiry.
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