Hatcher v. Hatcher

• Decision Date: 29 August 1996
• Docket Number: No. 1,CA-CV,1
• Parties: Julia M. HATCHER, Petitioner-Appellant, v. Marvin L. HATCHER, Respondent-Appellee. 95-0426.
• Court: Arizona Court of Appeals

Page 1222

933 P.2d 1222

188 Ariz. 154

Julia M. HATCHER, Petitioner-Appellant, v. Marvin L. HATCHER, Respondent-Appellee.

No. 1 CA-CV 95-0426.

Court of Appeals of Arizona,

Division 1, Department E.

Aug. 29, 1996.

Reconsideration Denied Sept. 20, 1996.

Review Denied March 25, 1997.

[188 Ariz. 156] William B. Hurst, P.C. by William B. Hurst, Flagstaff, for Petitioner-Appellant.

Aspey, Watkins & Diesel, P.L.L.C. by Harold L. Watkins and Whitney Cunningham, Flagstaff, for Respondent-Appellee.

OPINION

THOMPSON, Judge.

Appellant Julia M. Hatcher (wife) seeks review of a dissolution decree awarding jointly-held real property to Appellee Marvin L. Hatcher (husband). Wife contends that the trial court erred in finding that the proceeds from a disability insurance settlement awarded to husband, and the family residence and an apartment complex purchased with the insurance proceeds and held in joint tenancy, were husband's separate property. We agree that the insurance proceeds were, in part, community property, and reverse.

FACTS AND PROCEDURAL HISTORY

The parties were married in Arizona on December 6, 1980. They had four children during the marriage. Husband worked for Ralston Purina Company, and voluntarily agreed to participate in an insurance program offered by his employer in April 1982. The "Voluntary Personal Accident Plan" (VPA) provided for benefits to the employee's family or to the employee in the event of accidental death, dismemberment or disability. Husband initially designated his wife and son as beneficiaries of the insurance policy, subsequently amending the policy to include coverage for his three after-born children. Premiums for the VPA program were automatically deducted from husband's paycheck.

In November 1984, husband suffered the loss of his right hand and the partial loss of his right arm in a work-related accident. Husband missed work for three months because of his injuries. During this time, husband received a small worker's compensation award which went toward household expenses. Under the VPA policy, he received a lump sum settlement of $120,000 and monthly structured payments for a period of fifty-four months.

A portion of the VPA proceeds was placed in a joint account which the husband and wife maintained at a local credit union, and later used as a down payment on the purchase of the family residence in Flagstaff, Arizona. The parties subsequently used payments from the monthly structured disability settlement to pay the remaining balance owed on the house. Title to the residence was taken by husband and wife as joint tenants with right of survivorship.

The parties also used some of the insurance settlement proceeds to construct an apartment complex on a parcel of land owned by husband prior to marriage. Two different lenders provided construction and permanent financing for the apartments. Both husband and wife signed the promissory note and held title to the property as joint tenants with right of survivorship. The rental income produced by the apartments fully satisfied each month's mortgage payments owed on the property.

Wife filed for divorce in February 1991. At trial, the court found that the insurance settlement proceeds were husband's separate property. The court held that, although the residence and apartment complex were held in joint tenancy, husband had "shown by clear and convincing evidence that it was not his intent to make a gift of the real property to the community." The court therefore ordered that the real property was the separate property of husband. Wife appeals from these determinations.

DISCUSSION

On appeal, wife argues that the VPA insurance proceeds constituted community property because the premiums were paid with community funds and because the settlement monies were received during the course of the parties' marriage. Alternatively, wife contends that even if the insurance proceeds were in fact husband's separate property, he failed to rebut the presumption created by the joint tenancy deeds for the residence and apartment complex that husband intended to make a gift of these properties to her.

We view all the evidence and reasonable conclusions therefrom in the light most favorable to supporting the trial court's decision regarding the nature of the property as either community or separate. Sommerfield v. Sommerfield, 121 Ariz. 575, 577, 592 P.2d 771, 773 (1979). In Arizona, the presumption is that all property acquired by either spouse during marriage is community property, except that which is acquired by gift, devise or descent. Id.; Ariz.Rev.Stat. Ann. (A.R.S.)s 25-211.

We first consider the character of husband's VPA insurance benefits. Husband relies on Jurek v. Jurek, 124 Ariz. 596, 606 P.2d 812 (1980), for his assertion that the disability benefits received for his personal injuries were separate property. In Jurek, our supreme court held that a recovery for personal injuries is comprised of various component parts which may be either community or separate in nature. Id. at 597-98, 606 P.2d at 813-14. Compensation for any expenses incurred by the community for medical treatment and any loss of wages resulting from the personal injury are deemed community property. Id. at 598, 606 P.2d at 814. Any portion of the recovery intended to provide compensation for injury to a spouse's personal well-being is considered that spouse's separate property. Id. Husband contends that the VPA proceeds were wholly intended to compensate him for his personal injuries and, therefore, were his separate property under Jurek.

Two Arizona cases subsequent to the Jurek decision are cited by husband to support his position. In In re Marriage of Kosko, 125 Ariz. 517, 611 P.2d 104 (App.1980), we held that disability benefits are the separate property of the disabled spouse after dissolution. In characterizing the nature of disability benefits, we noted:

Whether paid for by the employer or the employee, the amount expended [for disability insurance] is to protect against a risk of disability which may, but usually does not, occur. The amount paid to protect against this risk does not accumulate in a fund, nor does it build into an equity having an ascertainable value. Although the entitlement to this benefit may be attributed to employment and thus have a community origin, the money so expended does not produce a community asset subject to division at dissolution. What it produces is coverage for the individual spouse against the risk of disability and loss of future earning ability.... While disability income protection may arise during marriage, it is for the protection of community earnings during the existence of the marriage and for the protection of separate earnings of the disabled spouse in the event of dissolution.

125 Ariz. at 518-19, 611 P.2d at 105-06. Thus, consistent with Jurek, this court concluded that disability benefits are the separate property of the disabled spouse after dissolution. Id. Division Two of this court adopted the same view of disability benefits in McNeel v. McNeel, 169 Ariz. 213, 818 P.2d 198 (App.1991). ¹

Neither of these cases is dispositive here. While Kosko and McNeel establish that any portion of disability proceeds which represent compensation for post-dissolution earnings of the injured spouse is the separate property of that spouse, neither case clearly addresses the proper characterization of disability benefits received during marriage. Whether a non-disabled spouse may claim a community interest in disability benefits received by an injured spouse during marriage has not been directly decided in Arizona.

We conclude that the proceeds from a disability insurance policy for an accident occurring during marriage may be subject to division at dissolution. Contrary to wife's assertion, the determination that a disability insurance policy was acquired with community funds does not necessarily lead to the conclusion that the disability benefits are community property. Lachney v. Lachney, 529 So.2d 59, 64 (La.Ct.App.1988). Rather, like personal injury recoveries, disability benefits have various component parts. See Villasenor v. Villasenor, 134 Ariz. 476, 657 P.2d 889 (App.1982) (disability retirement benefits divided into community and separate property). The primary intent of a disability policy is to insure against the risk of loss of the insured's future earning capacity. In re Marriage of Leland, 69 Wash.App. 57, 847 P.2d 518, 526 (1993). Indeed, by purchasing disability insurance, a married couple protects against the possibility of economic loss caused by injury to either spouse's earning ability. See Kosko, 125 Ariz. at 518, 611 P.2d at 105 (disability insurance provides coverage "against the risk of disability and loss of future earning ability"). While the marital community exists, a disabled spouse's reduced earning capacity results in a loss to the community. Luna v. Luna, 125 Ariz. 120, 125, 608 P.2d 57, 62 (App.1979); In re Marriage of Jones, 13 Cal.3d 457, 119 Cal.Rptr. 108, 111, 531 P.2d 420, 423 (1975). At dissolution, however, the loss to the community ceases and any reduced earning capacity becomes the separate loss of the disabled spouse. 119 Cal.Rptr. at 111-12, 531 P.2d at 423-24.

Here, the loss of husband's arm and hand resulted in both a loss of earnings...