Walker v. Walker ( 2023 )


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  •                                    IN THE
    ARIZONA COURT OF APPEALS
    DIVISION ONE
    In re the Matter of:
    FRED BERNARD WALKER, Petitioner/Appellee,
    v.
    STEPHANIE CAROL WALKER, Respondent/Appellant.
    No. 1 CA-CV 23-0036 FC
    FILED 10-3-2023
    Appeal from the Superior Court in Maricopa County
    No. FN2021-070725
    The Honorable Lori Ash, Judge Pro Tempore
    JURISDICTION ACCEPTED/RELIEF GRANTED
    COUNSEL
    Law Office of Paula Lorona, Peoria
    By Marty J. Zalevsky
    Counsel for Petitioner/Appellee
    Ellsworth Family Law PC, Mesa
    By Glenn D. Halterman
    Counsel for Respondent/Appellant
    WALKER v. WALKER
    Opinion of the Court
    OPINION
    Judge Paul J. McMurdie delivered the Court’s opinion, in which Presiding
    Judge D. Steven Williams and Judge Samuel A. Thumma joined.
    M c M U R D I E, Judge:
    ¶1             Stephanie Walker (“Wife”) appeals from the decree
    dissolving her marriage to Fred Walker (“Husband”). The decree directs
    the preparation of a qualified domestic relations order (“QDRO”) and states
    that “no further matters remain pending.” Ariz. R. Fam. Law P. (“Rule”)
    78(c). But the decree did not divide potential survivor benefits of a
    retirement account. Because the decree did not divide the potential survivor
    benefits, it did not resolve all issues and thus was not appropriately
    certified as appealable under Rule 78(c). As a result, this court lacks
    appellate jurisdiction. At our discretion, however, we treat Wife’s appeal as
    a special action and address Wife’s claims.
    ¶2          On the merits, we grant relief to Wife, holding that the court
    erred by deviating from Drahos/Barnett1 based on equity concerns about
    awarding Wife her separate property. We also find no evidence of
    community waste and vacate the court’s finding.
    FACTS AND PROCEDURAL BACKGROUND
    ¶3           Husband and Wife married in 1990. In 2016, the parties
    bought a home and took the title in Wife’s name. Husband signed a
    disclaimer deed acknowledging Wife’s sole interest in the house. Wife
    made a $14,410 down payment with funds from a USAA bank account
    containing community funds. The parties used community income during
    the marriage to pay the mortgage and upkeep of the house. After the
    purchase, Husband made several repairs and improvements to the home.
    ¶4           Husband moved out of the house in 2021 and petitioned for
    dissolution a few months later. Around this time, Wife secured a home
    equity loan and deposited $85,243 in loan proceeds in a bank account. Less
    1      See Drahos v. Rens, 
    149 Ariz. 248
     (App. 1985); Barnett v. Jedynak, 
    219 Ariz. 550
     (App. 2009).
    2
    WALKER v. WALKER
    Opinion of the Court
    than a week later, Wife wrote five checks for $9,500 each and one for $4,000
    to family members for “familial debts.”
    ¶5            Wife sold the home before the trial and paid off the home
    equity loan. At a temporary orders hearing, the superior court ordered Wife
    to account for the home sale proceeds pending trial. At the trial, the parties
    agreed the community had an equitable lien in some portion of the sale
    proceeds but disputed the amount. They stipulated that applying the
    Drahos/Barnett formula led to each spouse’s equitable lien of $9,211 ($18,422
    total).
    ¶6           At the trial, the court excluded Husband’s appraiser because
    of untimely disclosure. The appraiser would have provided an opinion
    about the home’s value before and after Husband’s home improvements.
    Instead, Husband testified about his various repairs and improvements to
    the house, which he estimated increased its value by $50,000.
    ¶7            The court found that applying the Drahos/Barnett formula was
    inequitable. The court rejected Husband’s estimated value increase as too
    high and awarded Husband $35,000 for his share of the community’s
    equitable lien. The court also found that the checks written to Wife’s family
    totaling $47,500 constituted marital waste and awarded Husband $23,750.
    ¶8            As for Wife’s 401(k), the parties asked for it to be divided
    equitably. In the decree, the court awarded each party 50% of the
    community portion of Wife’s 401(k), to be divided via a QDRO. The decree
    provided that “[t]o the extent there may be survivor benefits associated
    with any of the retirement accounts, the QDRO drafter shall be appointed
    as a Rule 72 Special Master to make recommendations to the [c]ourt as to
    whether the non-employee spouse should be awarded a survivor benefit.”
    The decree included Rule 78(c) language stating that “[n]o further matters
    remain pending.” Wife filed a notice of appeal from the decree.
    DISCUSSION
    Appellate Jurisdiction.
    ¶9            This court directed supplemental briefing on whether the
    decree’s Rule 78(c) language was appropriate, given the decree’s direction
    that (1) a QDRO be prepared and (2) the QDRO drafter recommend
    disposition of any survivor benefit.
    ¶10         For appellate jurisdiction to exist, a statute or constitutional
    provision must grant a substantive right to appeal, and the judgment must
    3
    WALKER v. WALKER
    Opinion of the Court
    comply with applicable procedural rules. State v. Birmingham, 
    96 Ariz. 109
    ,
    111-12 (1964); Yee v. Yee, 
    251 Ariz. 71
    , 74-75, ¶ 8 (App. 2021). Under A.R.S.
    § 12-2101(A)(1), this court has jurisdiction over an appeal from a final
    judgment in an action commenced in superior court. Brumett v. MGA Home
    Healthcare, L.L.C., 
    240 Ariz. 420
    , 426, ¶ 4 (App. 2016). A dissolution decree
    generally constitutes an appealable judgment in a family court action. See
    Craig v. Craig, 
    227 Ariz. 105
    , 106, ¶ 6 (2011).
    ¶11           A judgment must include language certifying it is appealable.
    Brumett, 240 Ariz. at 426, ¶ 6; Banner Univ. Med. Ctr. Tucson Campus, LLC v.
    Gordon, 
    252 Ariz. 264
    , 266-67, ¶ 11 (2022); see also Yee, 251 Ariz. at 75, ¶ 9
    (quoting Ariz. R. Fam. Law P. 78(c)). Rules 78(b) and (c) set out the required
    language for a judgment in a family court action to be appealable.2 If a
    decree resolves all claims and issues against all parties, the certification
    must recite “that no further matters remain pending and that the judgment
    is entered under Rule 78(c).” Ariz. R. Fam. Law P. 78(c). If the decree
    resolves less than all claims and issues, it can be appealable if the court
    expressly determines “there is no just reason for delay and recites that the
    judgment is entered under Rule 78(b).” Ariz. R. Fam. Law P. 78(b); see also
    Davis v. Cessna Aircraft Corp., 
    168 Ariz. 301
    , 304 (App. 1991) (applying
    textually similar Ariz. R. Civ. P. 54(b)). This court lacks jurisdiction over an
    appeal from a family court judgment that resolves less than all claims and
    does not include Rule 78(b) language. Camasura v. Camasura, 
    238 Ariz. 179
    ,
    181–82, ¶¶ 7–8 (App. 2015).
    ¶12            In a dissolution action, the superior court must divide the
    community property, including retirement plans such as a 401(k). A.R.S.
    § 25-318(A); see also Caswell v. Caswell, 99 Ariz. Cases Dig. 4, 9-10, ¶¶ 27-28
    (App. June 20, 2023) (Morse, J. and Cruz, J., specially concurring)
    (questioning whether a decree that does not resolve all issues about the
    division of retirement benefits is appealable under Rule 78(c)). The division
    of a retirement plan is generally accomplished by the court establishing the
    percentage of a retirement plan each spouse is to receive, with a domestic
    2      Effective August 29, 2022, the term “final” was removed from Rules
    78(b) and (c) and replaced with “appealable.” Ariz. Sup. Ct. No. R-22-0005
    (Aug. 29, 2022). The Rules thus do not affect the finality of any judgment,
    but help the court determine whether a judgment in a family court action is
    appealable.
    4
    WALKER v. WALKER
    Opinion of the Court
    relations order3 to be entered later. Brett R. Turner, Equitable Distribution of
    Property, § 6:20 (4th ed. 2023). The QDRO directs the plan administrator to
    pay the non-owning spouse per the substantive division outlined in the
    decree. Id.
    ¶13           The question is whether the direction for entry of a QDRO
    leaves a substantive issue pending, which would make the Rule 78(c)
    finding an error. See Baker v. Bradley, 
    231 Ariz. 475
    , 481, ¶ 19 (App. 2013)
    (explaining the need to determine whether substantive or ministerial issues
    are pending when addressing a premature notice of appeal).
    ¶14           When a court specifies the division of a retirement plan
    between divorcing spouses and directs entry of a separate QDRO, the
    general rule in modern practice is that the second order, the QDRO, “is not
    a substantive order at all” but is instead a “procedural device[] for enforcing
    the terms of the underlying substantive order.” Turner, supra § 6:20.
    Viewing the QDRO as a procedural device permits it to be more easily
    modified given future events and plan administrators’ decisions “as needed
    to ensure fair implementation of the generally unmodifiable terms of the
    substantive order.” Id. Recent Arizona caselaw reflects this understanding.
    See Hodges v. Hodges, 1 CA-CV 22-0091, 
    2022 WL 4102880
    , at *2, ¶ 7 (Ariz.
    App. Sept. 8, 2022) (mem. decision) (The court held that the decree gave
    “Wife ‘immediate, present, and vested separate property interest’ in her
    community share of Husband’s retirement accounts,” and that seeking to
    have QDROs prepared “is simply seeking compliance of the [property
    settlement agreement] and Decree.”); Vincent v. Shanovich, 1 CA-CV
    16-0431, 
    2018 WL 4585984
    , at *3, ¶ 10 (Ariz. App. Sept. 25, 2018) (mem.
    decision) (The court reversed the denial of the motion to set aside a QDRO
    containing a clerical mistake that did not accurately reflect the decree.).
    ¶15           Thus, if a dissolution decree resolves the substantive division
    of a retirement account, a QDRO should be treated as a special order
    entered after the final judgment under A.R.S. § 12-2101(A)(2) for appeal
    purposes. See Boncoskey v. Boncoskey, 
    216 Ariz. 448
    , 451, ¶ 12 (App. 2007).
    An appeal from the entry of a QDRO involves different issues than “those
    that would arise from an appeal from the underlying judgment.” Arvizu v.
    3      Whether a domestic relations order must be “qualified” is a
    determination for the plan administrator, not the state courts. Brett R.
    Turner, Equitable Distribution of Property, §§ 6:19, 6:20 (4th ed. 2023). In this
    opinion, we use the term QDRO to refer to all domestic relation orders for
    simplicity.
    5
    WALKER v. WALKER
    Opinion of the Court
    Fernandez, 
    183 Ariz. 224
    , 226-27 (App. 1995); see also In re Marriage of Dorman,
    
    198 Ariz. 298
    , 300, ¶ 3 (App. 2000).
    ¶16           And because a QDRO may be entered months or years after a
    decree, policy considerations preferring finality of the decree favor viewing
    a QDRO as a procedural mechanism to enforce a final decree rather than as
    a substantive order required to be prepared before an appeal can be taken.
    See Joshua A. Dean, Wilson v. Wilson: The Effect of QDROs on Appealing
    Divorce Decrees, 
    42 Akron L. Rev. 639
    , 673–77 (2009) (discussing the
    ramifications of the delay in having QDROs prepared); see also Caswell, 99
    Ariz. Cases Dig. at 5, ¶ 1 (amended QDRO prepared 18 months after the
    dissolution decree); Boncoskey, 216 Ariz. at 449, 451, ¶¶ 2, 12 (QDRO entered
    three years after the dissolution decree). A dissolution decree’s retirement
    account division resolves the claim even if a QDRO is to be prepared later.
    An appeal from a dissolution decree should not be delayed because a
    QDRO has not been prepared and filed.
    ¶17           Thus, we hold that when a dissolution decree resolves all
    issues and divides a retirement account by awarding a specific percentage
    to each party but orders a QDRO to be prepared consistent with its orders,
    the decree is appealable if it contains Rule 78(c) language indicating no
    other pending matters.
    ¶18            But here, the dissolution decree awarded 50% of the
    community portion of Wife’s 401(k) to Husband and directed that a QDRO
    be prepared. But it also provided that “[t]o the extent there may be survivor
    benefits associated with any of the retirement accounts, the QDRO drafter
    shall be appointed as a Rule 72 Special Master to make recommendations
    to the [c]ourt as to whether the non-employee spouse should be awarded a
    survivor benefit.” A court may appoint an attorney or other professional to
    recommend a division of retirement benefits or implement a division the
    court ordered. Ariz. R. Fam. Law P. 72.1(a). But if “the professional finds
    the division requires the use of discretion, the professional must submit its
    recommendation to the court for approval.” Ariz. R. Fam. Law P. 72.1(e).
    Dividing property is a discretionary determination, not a ministerial
    matter. See In re Marriage of Inboden, 
    223 Ariz. 542
    , 544, ¶ 7 (App. 2010).
    ¶19          Mentioning potential survivor benefits but failing to
    determine whether they exist and dividing any such benefits means the
    decree did not resolve all claims and issues, which precludes certification
    under Rule 78(c). The judgment is not appealable if it includes Rule 78(c)
    language when potential issues or claims remain pending. See Madrid v.
    Avalon Care Center-Chandler, L.L.C., 
    236 Ariz. 221
    , 224, ¶ 11 (App. 2014)
    6
    WALKER v. WALKER
    Opinion of the Court
    (There is no appellate jurisdiction over a judgment that includes Ariz. R.
    Civ. P. 54(c) language when claims remain pending.); Caswell, 99 Ariz.
    Cases Dig. at 10, ¶ 29 (Morse, J. and Cruz, J., specially concurring)
    (Piecemeal litigation is disfavored.).
    ¶20            In Wife’s supplemental memorandum addressing
    jurisdiction, she asserts, without citation to the record, that the 401(k) does
    not have a survivor benefit. Because the record does not support that there
    are no survivor benefits, the decree is not appealable because it does not
    divide a potentially listed asset and lacks Rule 78(b) language. See Camasura,
    238 Ariz. at 181-82, ¶¶ 7-8 (A dissolution decree is not an appealable
    judgment because issues remained pending and there was no Rule 78(b)
    language.).
    ¶21             We, therefore, find that including Rule 78(c) language in the
    decree was inaccurate because a substantive issue about property division
    remained unresolved, meaning this court lacks appellate jurisdiction. Even
    so, we exercise our discretion to treat the appeal as a special action and
    resolve the claims raised. See Brionna J. v. Dep’t of Child Safety, 
    247 Ariz. 346
    ,
    350, ¶ 13 (App. 2019) (A court without appellate jurisdiction may
    “exercise . . . discretionary special action jurisdiction under appropriate
    circumstances, even when the parties have not requested such relief.”); see
    also A.R.S. § 12-120.21(A)(4) (court of appeals has “[j]urisdiction to hear and
    determine petitions for special actions brought pursuant to the rules of
    procedure for special actions, without regard to its appellate jurisdiction”).
    Merits.
    ¶22           Wife challenges two rulings in the decree. First, she contends
    the evidence does not support the amount of the community’s equitable
    lien on her separate property home. Second, she argues the court erred by
    finding she wasted community funds.
    A.   The Evidence Does Not Support a Deviation from the
    Drahos/Barnett Formula.
    ¶23             We review the superior court’s allocation of property for an
    abuse of discretion. Saba v. Khoury, 
    253 Ariz. 587
    , 590, ¶ 7 (2022). “The
    determination of the amount of the community interest in separate
    property resulting in an equitable lien is a mixed question of fact and
    law . . . so we defer to the [superior] court’s factual findings but review legal
    conclusions de novo.” 
    Id.
     (citations omitted).
    7
    WALKER v. WALKER
    Opinion of the Court
    ¶24           Wife was entitled to the sale proceeds from her separate
    property home. See A.R.S. § 25-213(A) (An increase in value of a spouse’s
    separate property is that spouse’s separate property.). But the marital
    community is entitled to an equitable reimbursement for its contributions
    to that separate property home. Saba, 253 Ariz. at 592, ¶ 15. Our supreme
    court held that the Drahos/Barnett formula is a useful, consistent starting
    point, but courts may depart from that formula when warranted. Id. at 592,
    ¶ 16. An example of when to “modify the value generated by the
    Drahos/Barnett formula” is when community funds or efforts are used to
    improve the home. Id. at 592, ¶ 16, n.4. Saba noted that “fair return may be
    more accurately calculated by appraising the increase in the value of the
    home immediately before and after the improvements.” Id. Thus, Saba
    allows courts to consider other options to reimburse the community for its
    contributions to separate property.
    ¶25           The superior court found this case warranted a deviation
    from “an equal division of property” because, after thirty years of marriage,
    Husband had no other significant separate property and awarding Wife “all
    the funds from the sale of the residence” would lead to a windfall to her.
    But the home (and the proceeds from its sale) was Wife’s separate property,
    not community property subject to equitable division under § 25-318(A).
    See Saba, 253 Ariz. at 592–93, ¶ 17. Even so, the community has a right to an
    equitable reimbursement for contributions to one spouse’s separate
    property. And despite framing its analysis of the equitable lien as a
    “division of community property,” it appears the superior court, in
    substance, found the application of the Drahos/Barnett formula inequitable.
    ¶26            The court found Husband’s efforts increased the home’s
    value and awarded him $35,000 for his share of the community lien.
    Although the court had the discretion to conclude that Husband’s efforts
    justified deviating from the Drahos/Barnett formula, Saba, 253 Ariz. at 592,
    ¶ 16, n.4, the record does not support a $35,000 award.
    ¶27           Husband testified to a list of general home maintenance and
    improvements he performed. He provided photos of his projects but no
    appraisals. The superior court found that Husband’s $50,000 estimate was
    too high. But an award of $35,000 for Husband’s share means the total
    community lien would be $70,000. Even if we account for the $18,422 of
    community funds contributed—as the parties stipulated—the difference of
    $51,578 represents the increased value from Husband’s efforts. This amount
    contradicts the court’s conclusion that Husband’s $50,000 estimate was too
    high.
    8
    WALKER v. WALKER
    Opinion of the Court
    ¶28           Husband argues the court’s finding that the $50,000 increase
    in value was too high was dicta, and this court can also consider market
    appreciation as a basis to affirm the ruling. But Husband presented no
    evidence of market appreciation. Moreover, Husband’s suggested
    approach would require us to ignore the court’s express finding and
    presume that the increase in value was higher than Husband’s estimate. We
    cannot ignore the court’s finding. Because the court rejected Husband’s
    estimation, the record does not support the award of $35,000 as Husband’s
    share of the community’s equitable lien on Wife’s separate property. We
    vacate the order awarding Husband $35,000 as his share of the equitable
    lien.
    ¶29           Wife argues that because there was no other competent
    evidence showing how much Husband’s efforts increased the home’s
    value, the only option is to remand and apply the stipulated Drahos/Barnett
    formula. We agree. Husband had the burden of showing the amount of the
    increase in value. Hefner v. Hefner, 
    248 Ariz. 54
    , 60, ¶ 17 (App. 2019) (A
    spouse claiming he increased the value of the other spouse’s separate
    property through community labor and funds has the burden of showing
    the increased amount.). The court rejected Husband’s evidence, and he did
    not appeal that ruling. As a result, the only evidence of the community’s
    contribution was the stipulated Drahos/Barnett formula. Thus, we vacate the
    award of $35,000 to Husband for his share of the community’s equitable
    lien and remand with instructions to apply the stipulated formula.
    B.    The Superior Court Erred by Finding Wife Transmuted Her
    Separate Property by Depositing it in a Commingled Bank Account, so
    the Waste Finding Is Based on an Erroneous Legal Conclusion.
    ¶30          We review the superior court’s characterization of separate or
    community property de novo. Bell-Kilbourn v. Bell-Kilbourn, 
    216 Ariz. 521
    ,
    523, ¶ 4 (App. 2007). The court accepted Husband’s position that the home
    equity loan proceeds became community property because Wife deposited
    them into an account containing community funds. This was error.
    ¶31            “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); accord
    Cooper v. Cooper, 
    130 Ariz. 257
    , 259 (1981); Noble v. Noble, 
    26 Ariz. App. 89
    ,
    95 (1976) (Commingling does not cause transmutation “so long as the funds
    remain traceable.”); O’Hair v. O’Hair, 
    109 Ariz. 236
    , 239 (1973) (When a
    spouse’s separate funds are deposited in a joint bank account, the marital
    relationship alone does not presume a gift.). Thus, the finding of waste is
    9
    WALKER v. WALKER
    Opinion of the Court
    based on an erroneous premise. If the funds remained traceable, the
    commingling did not transmute them. If not transmuted, the funds
    remained Wife’s separate property and thus could not support a marital
    waste finding. See A.R.S. § 25-318(C) (permitting consideration of waste as
    to “community joint tenancy and other property held in common”).
    ¶32           Wife showed that the bank account had a balance of $10,889
    when she deposited the loan proceeds. Husband does not dispute that the
    loan proceeds were Wife’s separate funds. Wife wrote five identifiable
    checks less than a week after depositing her separate funds. Thus, the funds
    were traceable and did not lose their identity. See Cupp, 152 Ariz. at 164
    (Separate funds remained traceable where spouse bought “easily
    identifiable assets” with commingled separate funds “within a very short
    time after receiving those funds.”).
    ¶33           Husband argues that because the checks repaid community
    debts and expenses, Wife gifted the funds to the community, rendering
    them commingled and untraceable. But a spouse’s use of separate funds to
    pay a community debt does not transmute the balance of the separate funds
    into community property. See Battiste v. Battiste, 
    135 Ariz. 470
    , 473 (App.
    1983). But contrary to Husband’s position, the superior court found that
    Wife’s payments to her family were not community debts, and using
    community funds for this purpose was waste. The loan proceeds were
    traceable and remained Wife’s separate property, meaning she could spend
    them on non-community expenses without consequence. See Blaine v.
    Blaine, 
    63 Ariz. 100
    , 113 (1945) (There is a presumption that separate
    expenses are paid out of the separate funds in a commingled account.).
    ¶34            The loan proceeds did not lose their separate property
    identity just because they were placed in a commingled account. The funds
    were traceable and thus remained Wife’s separate property. The court erred
    by finding Wife committed waste by paying her family $47,500. We vacate
    the order awarding Husband $23,750.
    ATTORNEY’S FEES
    ¶35          The parties request an award of attorney’s fees and costs on
    appeal under A.R.S. § 25-324. In exercising our discretion, we decline to
    award fees. As the successful party, Wife is entitled to costs on appeal upon
    compliance with ARCAP 21. See A.R.S. § 12-342.
    10
    WALKER v. WALKER
    Opinion of the Court
    CONCLUSION
    ¶36           We reverse the award of $35,000 to Husband as his share of
    the community’s equitable lien on Wife’s home and remand with
    instructions to apply the stipulated Drahos/Barnett formula. We vacate the
    finding of waste and the corresponding award to Husband. The decree is
    otherwise affirmed.
    AMY M. WOOD • Clerk of the Court
    FILED: AA
    11
    

Document Info

Docket Number: 1 CA-JV 23-0036

Filed Date: 10/3/2023

Precedential Status: Precedential

Modified Date: 10/3/2023