D. Jurisdiction to Control and Dispose of Community and Separate Property Assets
The statutory authority
for the state courts to assert jurisdiction over the control and disposition of
community and, to some extent, separate property assets is found in A.R.S. §
25-318. The statute has been amplified in recent years, mainly to cover the
situation where creditors of the community are concerned.
Under this statute, as
uniformly interpreted by Arizona case law, the distribution of community
property requires a substantially equal (equitable) distribution of community
assets unless there’s a compelling reason to do the converse. Please see
Kelly v. Kelly (2000) 198 Ariz. 307. 9 P.3d 1046.
Further, the distribution
of the community property does not need to be in kind or exactly equal but must
result in essentially an equitable or nearly equal distribution. Miller v.
Miller (App. Div. 1 1984) 140 Ariz. 520, 683 P.2d 319.
Where the disputes
get interesting are typically in the realm of evaluation and other reasons for
increase in value during the marriage of a spouse’s separate property. For
example, the “book of business” value (renewal value of existing insurance
policies procured by an agent) is considered a community asset, subject to
division at dissolution. Payngburn v. Payngburn (App. Div. 2
1986) 152 Ariz, 227, 731 P.2d 122.
Also, in a 1947 case, the
Arizona court ruled that where a husband owned a cleaning business at the time
of the marriage and during the marriage purchased real estate from earnings
generated by his work in the cleaning business, such property was community
property and subject to a community claim by the wife. Anderson v. Anderson
(1947) 65 Ariz. 184. 177 P.2d 227. In this vein, the burden is upon the
spouse seeking to segregate the increased value of his separate asset during
marriage as separate property, and this burden can only be met by clear and
convincing evidence. Cockrill v. Cockrill (1979) 124 Ariz. 50, 601 P.2d
jurisdiction of the Superior Court to hear and decide matters relating to
dissolution of marriage arises under A.R.S. § 25-311.
The Superior Court does not necessarily require
personal jurisdiction over both parties since the dissolution action is an
action in rem over the marriage status. Schilz v.
Superior Court in
and for Maricopa County (1985) 144 Ariz.
65, 685 P.2d 1103. Jurisdiction normally is based upon plaintiff s domicile.
Leon v. Numkena (App. Div.1 1984) 142 Ariz. 307, 689 P.2d 566.
Once jurisdiction is
acquired by the Superior Court in divorce proceedings it has the authority to
determine all issues regarding the divorce, including property rights. Finnan
v. Auman (1982) 134 Ariz. 40, 653 P.2d 688.
Notably, jurisdiction over a divorce does not
necessarily imply jurisdiction over any other related proceedings.
In Schilz, the
Arizona court discussed the jurisdictional right of a New Mexico court to enter
Orders affirming the putative father’s paternity of a child. The putative father
was not subject to the personal jurisdiction of the New Mexico court and the
Arizona court determined, upon the putative father’s challenge of the
domestication of the New Mexico decree, that in personam jurisdiction is
required for the determination of paternity whereas the other issues necessary
to grant a decree of dissolution require only in rem jurisdiction.
Does the Superior Court
have jurisdiction to enforce by contempt the responsible ex-spouse’s failure to
pay allocated community debt after a discharge in bankruptcy? Arizona history
is checkered in this regard.
In the case of Perkins
v. Superior Court in and for Maricopa County (Ariz. 1966) 100 Ariz.
186. 412 P.2d 476, the Supreme Court held that the trial court was without
jurisdiction to order the husband to pay such community obligations to third
parties and could not enforce such an order by contempt. This holding has been
criticized by Srock v. Srock (Ariz. App. Div. 2 1970) 11 Ariz. App. 483,
466 P.2d 34. The Stuck case does not involve the obligated ex-spouse’s
discharge in bankruptcy.
Many of these older cases
are of dubious authority given the advent of and increase in popularity of the
bankruptcy code’s title 11 U.S.C. § 523(A)(15), later discussed.
1. Estoppel. Can
the doctrine of estoppel preclude a party from challenging a decree that may be
jurisdictionally defective? The courts addressed this issue in the case of
Unruh v. Industrial Commission (1956) 81 Ariz. 118, 301 P.2d 1029. In
that case, a divorce decree that was entered without adequate jurisdictional
elements, was challenged after the challenging party took advantage of the
existence of the decree by remarrying. Factually, the wife obtained an improper
divorce decree, had remarried and thereafter, learned of the death of the
purported ex-spouse. She then sought workmen’s compensation benefits by
contesting the validity of the divorce and arguing that she was still married
to the deceased workman. The court applied the principal of quasi estoppel to
preclude the woman from benefiting from her own unclean hands. Consequently, even though
the decree of divorce was invalid, the courts sidestepped the issue of
invalidity of the decree by finding that the woman essentially had no standing
to raise the issue.
2. Death of Spouse.
Another jurisdictional concern arises when one of the spouses dies during
the dissolution action. Upon death of the spouse, the dissolution action in
Arizona abates. Minnesota Mut. Life Ins. Co. v. Ensley, CA 9 (Cal.) 1999,
174 F.3d 977. Further, the court automatically loses jurisdiction to proceed
with the dissolution action. Van Emmerick v. Colosi (App. Div. 1 1998)
193 Ariz. 398, 972 P.2d 1034.
In a dissolution
proceeding, the trial court is without jurisdiction to grant a money judgment
against a spouse for damages that spouse may have inflicted on the other
spouse’s separate property. Weaver v. Weaver (1982) 131 Ariz. 586, 643
However, once the trial
court has subject matter jurisdiction over a divorce proceeding and personal
jurisdiction over both parties, it does have authority to decide all issues
regarding dissolution, including property rights A.R.S. § 25-3 11, Martin v.
Martin (Ariz. 1988) 156 Ariz. 452, 752 P.2d 1038; Airman v. Airman
(Ariz. 1982) 653 P.2d 688.
The case of Cadwell v.
Cadwell (Ariz. App. Div. 1. 1980) 126 Ariz. 460. 616 P.2d 920
enunciated the holding that although the statutes relating to dissolution of
marriage do not contain an explicit grant of authority to allocate debt payment
obligations between the spouses, since the trial court is required to provide in
the decree for disposition of the property of the couple, it necessarily has
jurisdiction to make allocations of indebtedness in the decree as well. (Citing
A.R.S. §§ 25-312, 25-315, 25-318 and 25-320.) This is despite the finding in
Victor v. Victor (App. Div. 1 1993) 177 Ariz. 231, 866 P.2d 899, which found
that the domestic relations court has no power to grant equitable relief outside
of the statutory framework which gives the court its authority. See also Fenn
v. Fenn (App. Div.1 1993) 174 Ariz. 84, 847 P.2d 129.
Since then, A.R.S. §
25-318 has been amended to incorporate various provisions regarding the
allocation of and assignment of obligation to pay community debt. Please note
Subparagraph N of the statute.
statute applicable to pension plans, A.R.S. § 33-1126(c), exempts, for the
purpose of the Bankruptcy Court, District of Arizona, “Any money or other assets
payable to a participant in or beneficiary of, or any interest of any
participant or beneficiary in a retirement plan under section 401(A), 403(A),
403(B), 408, 408a or 409 or a deferred compensation plan under 457 of the
United States Internal Revenue Code of 1986, as amended.”
While the bankruptcy
practitioner might reasonably presume that pension plans and retirement plans
under which their clients operate would automatically fall within the Arizona
Exemption Statute, creditors are becoming increasingly more challenging
regarding such plans.
regularly unchallenged, these plans are being scrutinized and challenged by
attorneys for creditors,
particularly where the plan has enough value to warrant the battle.
As a practice caveat, it
would be wise to advise bankruptcy clients of the potential for this type of
scrutiny and the likelihood of increased costs associated with what would
otherwise ordinarily be presumed a normal straightforward Chapter 7 filing.
The pleadings are routine
for the type of objection raised.