Saba v. Khoury

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
In re the Matter of:
HANI W. SABA,
Petitioner/Appellant/Cross-Appellee,
v.
SAWSAN KHOURY,
Respondent/Appellee/Cross-Appellant.
No. 1 CA-CV 19-0609 FC
FILED 1-21-2020
Appeal from the Superior Court in Maricopa County
No. FC2017-052690
The Honorable Melissa Iyer Julian, Judge
AFFIRMED
COUNSEL
Berkshire Law Office, PLLC, Tempe
By Keith Berkshire, Kristi A. Reardon, Alexandra Sandlin
Counsel for Petitioner/Appellant/Cross-Appellee
Burt Feldman & Grenier, Phoenix
By Amy M. Wilkins, Laura C. Brosh
Counsel for Respondent/Appellee/Cross-Appellant
SABA v. KHOURY
Opinion of the Court
OPINION
Presiding Judge Jennifer M. Perkins delivered the opinion of the Court, in
which Judge David B. Gass and Judge Michael J. Brown joined.
P E R K I N S, Judge:
¶1 Hani Saba (“Husband”) appeals from the superior court’s
decree of dissolution of his marriage to Sawsan Khoury (“Wife”). Husband
argues the court erred by (1) upholding the validity of his disclaimer deeds
and (2) improperly applying the formula to calculate community liens on
Wife’s separate property. Wife cross appeals, arguing the court erred by
crediting the community with loan payments (1) made from her separate
bank account and (2) made before Husband disclaimed his interest in
Leisure Lane. We affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Husband and Wife married in 2009 and have one minor child.
During the marriage they purchased two Phoenix houses, one located on
Leisure Lane (“Leisure Lane”) and the other on 30th Way (“30th Way”).
¶3 The parties purchased Leisure Lane in 2010 using community
funds to make the down payment. They deeded the property only to Wife,
as an “unmarried woman,” however, so they could obtain a first-time
homeowner tax credit and because, given Husband’s poor credit, Wife was
the sole borrower named on the home loan. Approximately 2.5 years later,
the parties refinanced the property for a lower interest rate. Because Wife
remained the sole borrower on the loan, the title company required
Husband to sign a disclaimer deed, disclaiming all “right, title, interest,
claim and demand” in Leisure Lane. Wife also executed a new warranty
deed to describe Leisure Lane as her sole and separate property as a
married woman. The parties also purchased 30th Way in 2010 using
community and Wife’s separate funds to make the down payment. Wife
took title to the home as her sole and separate property, and Husband
signed a disclaimer deed. The parties rented out both properties. They
deposited the rents in Wife’s separate Chase bank account X8995 (“8995”)
and made the loan payments on the homes through the same account.
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SABA v. KHOURY
Opinion of the Court
¶4 Husband filed a dissolution petition in April 2017. After a
two-day dissolution trial, the superior court entered a decree dissolving the
parties’ marriage and dividing their assets and liabilities. Husband timely
appeals and Wife cross-appeals. We have jurisdiction under A.R.S. § 12-
2101(A)(1).
DISCUSSION
¶5 These appeals present three issues: the validity of Husband’s
disclaimer deeds; the characterization of Wife’s 8995 account as community
property; and whether the superior court properly applied the valuation
formula to the Leisure Lane and 30th Way properties. “We review de novo
the legal question of whether property should be classified as community
or separate.” Femiano v. Maust, 248 Ariz. 613, 615, ¶ 9 (App. 2020). We
review the record on which the superior court based that classification in
the light most favorable to upholding its decision. Cooper v. Cooper, 130 Ariz.
257, 260 (1981). And we will not alter the superior court’s community
property distribution absent an abuse of that court’s broad discretion to
apportion the community property. Barnett v. Jedynak, 219 Ariz.
550, 553, ¶ 10 (App. 2009). The superior court abuses its discretion if it
commits an error of law when exercising discretion. Id.
1. Husband’s disclaimer deeds
¶6 Husband argues the superior court erred by upholding the
validity of his deeds, which disclaimed any interest in Leisure Lane and
30th Way. Property acquired during marriage is presumed to be
community property. A.R.S. § 25-211(A); see also Brebaugh v. Deane, 211 Ariz.
95, 97–98, ¶ 6 (App. 2005). The community property presumption can be
rebutted with a signed disclaimer deed. See Bender v. Bender, 123 Ariz. 90,
93 (App. 1979). A disclaimer deed is valid and enforceable unless the
disclaiming party proves by clear and convincing evidence that the deed
was procured by fraud or mistake. Femiano, 248 Ariz. at 616, ¶ 10.
¶7 When the parties acquired Leisure Lane and 30th Way,
Husband had poor credit. Although Husband intended for the two rental
properties to benefit the community, Wife could obtain more favorable
financing by applying for the loans by herself. Thus, title on the properties
securing the two loans needed to be in her name alone.
¶8 Husband does not argue Wife procured the disclaimer deeds
by fraud or mistake. Instead, he argues that disclaimer deeds, generally,
should receive the same heightened scrutiny as postnuptial agreements in
which married couples agree to divide their property. See In re Harber’s
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Opinion of the Court
Estate, 104 Ariz. 79, 88 (1969). In Harber, the Arizona Supreme Court held
that such an “agreement must be free from any taint of fraud, coercion or
undue influence; that the [challenging party] acted with full knowledge of
the property involved and [his or her] rights therein, and . . . was fair and
equitable.” See id. Further, the burden is on the party seeking to enforce the
postnuptial agreement “to prove by clear and convincing evidence that the
agreement was not fraudulent or coerced, or that it was not unfair or
inequitable.” Id. Husband cites Austin v. Austin, 237 Ariz. 201, 208, ¶ 20
(App. 2015), in which we applied that rule when a wife challenged a joint
operating agreement of a limited liability company the couple formed to
hold and manage her property. The superior court in Austin found the
operating agreement imposed “permanent and significant limitations” on
the wife’s property rights and arguably transformed her separate property
into community property. Id. at 207, ¶ 16.
¶9 The “higher standard” Husband advocates is essentially a call
to analyze disclaimer deeds as postnuptial agreements. Earlier panels of
this court have declined to do so. See id. at ¶¶ 17–18 (“[disclaimer] deeds
are not analyzed as postnuptial agreements.”); see also Ahern v. Levitt, 1 CA-
CV 13-0763, 2015 WL 848193, at *2, ¶ 9 (Ariz. App. Feb. 26, 2015) (mem.
decision). We similarly reject the invitation to do so here. Postnuptial
agreements necessarily require both spouses’ involvement and define each
spouse’s property rights in the event of death or divorce. Disclaimer deeds
are unilateral and simply renounce ownership in property, effectively
rebutting the presumption of community property. See Bell-Kilbourn v. Bell-
Kilbourn, 216 Ariz. 521, 524, ¶ 11 (App. 2007).
¶10 Married couples are free to determine the status of their
property. Id. at 523, ¶ 7. Husband exercised that freedom by disclaiming his
interests in Leisure Lane and 30th Way. Absent fraud or mistake, the
disclaimer deeds must be enforced.
2. Wife’s 8995 account
¶11 When community and separate property are commingled in
a single fund, the entire fund is presumptively community property “unless
the separate property can be explicitly traced.” Cooper, 130 Ariz. at 259(citation omitted). The superior court concluded the parties commingled
funds in 8995 and Wife failed to adequately distinguish, by tracing, which
funds in that account should be considered her separate property. As a
consequence, the court credited the community with all the payments made
from 8995 to reduce the principal owed on the loans used to purchase the
properties.
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SABA v. KHOURY
Opinion of the Court
¶12 Wife argues she did not need to trace her separate property in
8995 because Husband failed to show that her separate property and
community property were commingled in the account. But Wife’s expert
acknowledged the account was “occasionally” commingled. The parties
transferred money from another account (7308), which Wife’s expert
categorized as community property, into 8995. Wife’s expert also testified
that these transfers into 8995 were “most often” rent payments from the
parties’ tenants. The expert later testified he could not recall any
commingling of funds in 8995 although he acknowledged some “minor
deposits.” At least one deposit of “a couple hundred dollars” in 8995
remains unaccounted for, and Wife did not verify which funds remained
her sole and separate property. The superior court, therefore, properly
credited the community with all the payments made from 8995 toward the
principal owed on the two home loans.
3. Valuation analysis
¶13 When community funds are used to benefit separate
property, the community is entitled to a lien on that property, calculated by
applying a value-at-dissolution formula. See Drahos v. Rens, 149 Ariz. 248,
250 (App. 1985). When the property increased in value during the marriage,
we use a modified Drahos formula to compensate the community for its
share of a property’s appreciation. See Barnett, 219 Ariz. at 555, ¶ 21. The
resulting Drahos/Barnett formula is expressed as C+(C/B x A), where: C is
the total of any community contributions to reduce principal; B is purchase
price; and A is the amount the property appreciated during the marriage.
Id.
¶14 For Leisure Lane, the superior court credited the community
with contributions of $39,741.29. With a purchase price of $199,900 and
appreciation of $145,100, the superior court calculated a community lien of
$68,588.02. The parties purchased 30th Way for $170,001. The community
contributed $25,176.70 and the property increased in value by $150,999.
Consistent with Drahos and Barnett, the superior court calculated a
$47,539.25 community lien for 30th Way.
¶15 Husband argues the Drahos formula is inequitable because it
presupposes that the separate property owner has a superior interest in the
property, resulting in a windfall in favor of that party. We are not
persuaded. First, Husband’s argument ignores his valid disclaimers of any
interest in the two properties. Having disclaimed any right to the
properties, he can hardly complain that the formula grants a superior
interest in the properties to Wife, the sole owner of the properties. Second,
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SABA v. KHOURY
Opinion of the Court
Drahos and related cases do not prioritize home equity as the basis for
equitable liens. Instead, courts apply Drahos to reimburse the community
for its contributions and reward those contributions with a proportionate
share of appreciation. In this case, the community contributed $39,741.29
and $25,176.70 for Leisure Lane and 30th Way, respectively. The superior
court apportioned community liens against each property that nearly
doubled those contributions.
¶16 Husband also contends the superior court’s application of
Drahos to Leisure Lane was inequitable. Husband argues the community
should be credited with all the home’s appreciation because the community
made the down payment and funded all the principal payments on the
loan. He cites Femiano, 248 Ariz. at 617, ¶ 21. In Femiano, the wife had poor
credit, so the couple purchased their marital home in the husband’s name
only. Id. at 615, ¶ 3. The wife also signed a disclaimer deed. Id. As with
Leisure Lane, the couple made the down payment and all subsequent loan
payments with community funds. Id. The panel in Femiano declined to
apply Drahos, instead awarding the community an equitable lien equal to
all its contributions plus the home’s full appreciation. Id. at 617, ¶ 21.
¶17 We part company with Femiano. Awarding the community
Leisure Lane’s full appreciation ignores the reality of what the disclaimer
deed represents. But for that disclaimer, Husband would be entitled to an
equal interest in the full value of Leisure Lane. And an award under Femiano
would ignore the fact that Wife remains solely liable for the outstanding
loan balance. If the community were to receive 100% of the appreciation,
then Husband would be rewarded with 50% of the property’s upside with
none of the risk on the downside. This result is inequitable and
unreasonable.
¶18 Increases in property value resulting from a combination of
separate property and community contributions must be apportioned
accordingly. The separate property holder should not be stripped of the
ability to recoup his or her investment, just as the community should not be
deprived of an interest calculated on its contributions to the property’s
increased value. The Drahos/Barnett formula sufficiently balances these
interests and apportions the appreciation in an equitable manner. We,
therefore, affirm the superior court’s community lien calculations for
Leisure Lane and 30th Way consistent with Drahos/Barnett.
¶19 Finally, Wife argues the superior court erred by crediting the
community with payments made on the Leisure Lane loan before Husband
signed the disclaimer deed. We disagree. Equitable liens reimburse non-
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Opinion of the Court
owning spouses for the community’s contributions towards separate
property. See Valento v. Valento, 225 Ariz. 477, 481, ¶ 12 (App. 2010) (citing
Tester v. Tester, 123 Ariz. 41, 43 (App. 1979)). Husband’s disclaimer deed
repudiated any past or present property ownership in Leisure Lane. The
timing of Husband executing the disclaimer deed does not affect the
application of the Drahos formula.
ATTORNEYS’ FEES
¶20 Husband and Wife both request attorneys’ fees and costs
under A.R.S. § 25-324 and ARCAP 21. We have considered the financial
resources of both parties and find that neither party took unreasonable
positions on appeal. We deny both requests.
CONCLUSION
¶21 We affirm the decree of dissolution.
AMY M. WOOD • Clerk of the Court
FILED: AA
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