On March 9, 2017, Division One of the Arizona Court of Appeals issued the Opinion in Bobrow v. Bobrow. This case is important because it clarifies two issues of first impression (the first time the court has dealt with the issue) for the court:
- whether a divorcing spouse is entitled to reimbursement for paying community obligations while the petition for dissolution is pending, or whether a matrimonial presumption of a gift should apply; and,
- whether the parties may stipulate to a “prevailing-party” standard for attorney’s fees in a premarital agreement.
The parties married in 2002 and executed a pre-nup that, among other things, stated Wife would not receive alimony if the parties divorced and that the parties would use the “prevailing party” theory for attorney’s fees in any divorce litigation (more on this later). Wife filed for a divorce in October of 2013. After Wife filed for divorce, Husband continued voluntarily making the monthly payments on Wife’s vehicle and the marital residence.
At trial, Husband asked for a reimbursement of $77,000 for Wife’s share of the community expenses Husband paid after Wife filed for divorce. The trial court, however, found that these payments were gifts and denied Husband’s request for reimbursement. The trial court also found that the parties stipulated to the use of the “prevailing-party” theory for attorney’s fees and that neither party was entitled to their attorney’s fees under this standard.
After the trial ruling came out, Wife filed a motion to amend, contending that the trial court’s ruling on attorney’s fees was an error and requested attorney’s fees according to A.R.S. § 25-324 (the family law attorney’s fees statute). The trial court denied Wife’s motion.
Both parties appeals. Husband appealed the trial court’s ruling that his payments after Wife filed her petition were gifts. Wife appealed the trial court’s ruling using the “prevailing-party” standard for attorney’s fees.
There is no gift presumption after the Petition is filed.
First, what is the “gift presumption”? During a marriage, it is common for spouses to buy or pay for things for the other spouse. Typically, the spouses do not keep detailed records of all transactions occurring during a marriage in case of a divorce because that is ridiculous, and kind of sad. This behavior is just part of the spouses’ duty to care for one another. E.g., Becchelli v. Becchelli, 109 Ariz. 229, 232 (1973), superseded on other grounds by statute, A.R.S. § 25-318, as recognized in Jordon v. Jordan, 132 Ariz. 38, 39 (1982). The party making the gift can overcome this presumption by proving by clear and convincing evidence that they did not intend to make a gift at the time. E.g., Blaine v. Blaine, 63 Ariz. 100, 108 (1945).
This gift presumption applies to situations where a spouse voluntarily uses separate property to pay community expenses during the marriage. E.g., Baum v. Baum, 120 Ariz. 140, 146 (App. 1978). The service of a petition for divorce that actually results in a divorce, however, terminates the marital community. See A.R.S. § 25-211(A)(2). The gift presumption has never been applied to a spouse’s using their separate money to pay community expenses after the petition for divorce is served.
Husband argued that he did not intend for his payments to be a gift for the purposes of paying off Wife’s share of the community expenses. Wife cited the Baum case to argue that Husband is not entitled to a reimbursement for his voluntary payments because there was no agreement for Husband to be reimbursed. See Baum, 120 Ariz. at 146. The court disagreed with Wife.
The court reasoned that the cases Wife relied on, such as Baum, were all cases dealing with payments made before the petition for divorce was filed, so they don’t apply here because Husband made the payments in question after Wife filed the petition. Also, the court found Husband’s testimony that he did not intend for the payments to be gifts to Wife credible. See, e.g., In re Marriage of Berger, 140 Ariz. 156, 161–62 (App. 1983) (finding that it is the “giftor’s” intent, not the “giftee’s” belief, that determines whether something is a gift). Rather, he intended for the payments to pay down community expenses and maintain community assets. So, the court found that the payments were not gifts and that Wife needed to reimburse Husband .
The “prevailing-party” standard violates Arizona public policy regarding attorney’s fees in family court cases.
According to A.R.S. § 25-324, in divorce or family law actions, courts award attorney’s fees by determining whether: (1) one of the spouses earns/has a lot more money than the other spouse, (2) one of the spouses acted unreasonably, or (3) both. A.R.S. § 25-324‘s language tracks the relevant public policy regarding attorney’s fees in divorce and family law actions by, “allowing a spouse with limited resources to advance a legitimate though ultimately unsuccessful claim without being financially intimidated.”
There is an alternative theory for awarding attorney’s fees where the “prevailing party” is entitled to attorney’s fees if they win (“prevail”) on the majority of their claims.
Here, the parties entered into a pre-nup stating that attorney’s fees would be determined according to the prevailing party theory if the parties ended up getting a divorce. Wife argued that the trial court’s use of the prevailing party theory instead of A.R.S. § 25-324 violated public policy. The Court of Appeal agreed with Wife and found that the trial court’s use of the prevailing party theory-even if the parties agreed to use the theory in the pre-nup-violated the public policy behind A.R.S. § 25-324. See Edsall v. Superior Court in and for Pima County, 143 Ariz. 240, 247 (1984) (A.R.S. § 25-324 overrides the provision in a property settlement agreement awarding attorney’s fees solely on the basis that one party is the prevailing party). So, Wife won on this issue . . . accept she didn’t.
The court found that Wife waived-or forfeited-the right to make her public policy argument because she failed to include the argument in her pretrial statement. According to Rule 76(C), parties’s pretrial statements must contain a “detailed and concise statements of contested issues of fact and law.” Ariz. R. Fam. Law P. 76(C)(1)(i); see also Leathers v. Leathers, 216 Ariz. 374, 378, ¶ 19 (App. 2007) (“The pretrial statement controls the subsequent course of the litigation”). Thus, because Wife did not include the attorney’s fees argument in her pre-trial statement at the trial court level, she was not allowed to argue it at all. The Court of Appeals rubbed a little more salt in the wound by denying Wife’s request for attorney’s fees on appeal also.
This case is interesting because it clarifies the gift presumption as it applies to community expenses paid with separate property after the community is terminated. It is also important because it eliminates the issue of using different attorney’s fees standards in family court once and for all. This is actually a big issue when it comes to pre-nups because many pre-nups have a clause stating that some other attorney’s fees standard will be used other than the one in A.R.S. § 25-324. Finally, this case is important because it shows that nothing really matters if you waive a claim. It is exceedingly important to include all relevant claims in petitions and pre-trial statements, otherwise you lose them.