Hefner v. Hefner

• Decision Date: 10 December 2019
• Docket Number: No. 1 CA-CV 18-0404 FC,1 CA-CV 18-0404 FC
• Citation: Hefner v. Hefner, 248 Ariz. 54, 456 P.3d 20 (Ariz. App. 2019)
• Parties: In re the Matter of: Karen K. HEFNER, Petitioner/Appellee-Cross Appellant, v. Gary S. HEFNER, Respondent/Appellant-Cross Appellee.
• Court: Arizona Court of Appeals

248 Ariz. 54

456 P.3d 20

In re the Matter of: Karen K. HEFNER, Petitioner/Appellee-Cross Appellant,

v.Gary S. HEFNER, Respondent/Appellant-Cross Appellee.

No. 1 CA-CV 18-0404 FC

Court of Appeals of Arizona, Division 1.

FILED December 10, 2019

McMURDIE, Judge:

¶1 Gary Hefner ("Husband") appeals, and Karen Hefner ("Wife") cross-appeals, from a decree dissolving their marriage. Between them, the parties assert that the superior court erred by: (1) treating personal injury damages related to two automobile accidents as community property; (2) finding an auto-repair business was Husband’s separate property and Wife was not entitled to a community lien on the property; (3) denying both parties reimbursement for expenses paid during the dissolution proceedings; and (4) awarding Wife only a portion of her attorney’s fees. For the following reasons, we affirm the orders regarding attorney’s fees and costs, business assets, and reimbursements; but vacate the court’s order regarding the classification of the personal-injury settlement monies and remand for correction of the decree on that issue.

FACTS AND PROCEDURAL BACKGROUND²

¶2 In 2015, Wife petitioned for dissolution of the parties’ thirty-four-year marriage. At that time, Husband was in the process of negotiating settlements for personal injuries he sustained in two separate automobile accidents. Since 1998, Husband operated Hefner Auto Repair, Inc. ("the business"), an auto-repair shop purportedly gifted to him by his father, Frank Hefner.

¶3 After the January 2017 trial on the petition for dissolution, the superior court determined the personal-injury damages were community property and divided them equally between the parties. The court found the business was Husband’s separate property and awarded it to Husband. The court denied the parties’ competing claims for reimbursement of expenses paid during the proceedings but awarded Wife a portion of her attorney’s fees because Husband had greater financial resources.

¶4 The superior court resolved several post-trial motions in a manner that did not affect the provisions of the decree relevant to this appeal but granted a hearing to consider whether Wife was entitled to a share of the increased value of the business attributable to the community’s contribution. After reviewing the additional evidence and argument, the court denied Wife’s motion. Husband appealed and Wife cross-appealed. We have jurisdiction under Arizona Revised Statutes ("A.R.S.") sections 12-120.21(A)(1), -2101(A)(1), and -2101(A)(5)(a), and Arizona Rule of Family Law Procedure 78(c) (2019).

DISCUSSION

¶5 Husband argues the superior court erred by treating his personal-injury damages related to the two automobile accidents as community property because it was not his burden to prove what parts of the awards were separate property. Wife argues the superior court erred by classifying Husband’s business as separate property, denying her reimbursement for paying post-dissolution expenses, and awarding her only a portion of her attorney’s fees.

¶6 The superior court’s characterization of property is a question of law that we review de novo . In re Marriage of Pownall , 197 Ariz. 577, 581, ¶ 15, 5 P.3d 911, 915 (App. 2000). However, we review the division of property and debts, factual determinations, and award of attorney’s fees under A.R.S. § 25-324 for an abuse of discretion "and reverse only when clearly erroneous." In re Marriage of Gibbs , 227 Ariz. 403, 406, ¶ 6, 258 P.3d 221, 224 (App. 2011) ; Helland v. Helland , 236 Ariz. 197, 199, ¶ 8, 337 P.3d 562, 564 (App. 2014) (division of property); Valento v. Valento , 225 Ariz. 477, 481, ¶ 11, 240 P.3d 1239, 1243 (App. 2010) (factual determinations); Murray v. Murray , 239 Ariz. 174, 179, ¶ 20, 367 P.3d 78, 83 (App. 2016) (attorney’s fees). A trial court abuses its discretion when it misapplies the law or predicates its decision on incorrect legal principles. Hammett v. Hammett , ––– Ariz.App. ––––, ––––, 453 P.3d 1145, 1148, 2019 WL 5556953, *3, ¶ 13 (App. Oct. 29, 2019).

A. Husband’s Personal-Injury Settlements Are Presumptively His Separate Property, and the Community Proponent Has the Burden to Show Otherwise.

¶7 The superior court held that all of Husband’s injury awards were community assets because he had "not sustained his burden as to proving what portion of the [injury settlements] should be considered sole and separate property." Wife concedes that "damages for pain and suffering belong to the injured spouse as his or her separate property," citing Jurek v. Jurek , 124 Ariz. 596, 606 P.2d 812 (1980). However, she argues that it was Husband’s burden to prove what portion of his injury settlements were his separate property because the proceeds were acquired during the couple’s marriage. Conversely, Husband argues Jurek creates a presumption that funds intended to compensate a spouse for personal injury are separate property and places the burden upon the non-injured spouse to prove what portion, if any, represents compensation for community losses. He contends the superior court erred by burdening him with the responsibility of establishing the personal-injury proceeds were his separate property.

¶8 All property acquired during the marriage, except that obtained through gift, devise, or descent, is community property. A.R.S. § 25-211(A). But a spouse’s "personal property that is owned by that spouse before marriage ... is the separate property of that spouse." A.R.S. § 25-213(A). "Acquired" as used in A.R.S. § 25-211(A) "was not meant to apply to compensation for an injury to the person which arises from the violation of the right of personal security, which right a spouse brings to the marriage." Jurek , 124 Ariz. at 598, 606 P.2d at 814. This is because "the body which [the spouse] brought to the marriage is certainly [that spouse’s] separate property." Id. Accordingly, compensation for an injury to a spouse’s personal well-being belongs to that spouse as separate property. Id. ; see also Koelsch v. Koelsch , 148 Ariz. 176, 180, n.4, 713 P.2d 1234, 1238 (1986) ("In Jurek we held that recoveries for personal injuries were separate property since a spouse brings the right to personal security into the marriage." (citation omitted)).

¶9 The spouse seeking to overcome a presumption of asset characterization has the burden of establishing the character of the property by clear and convincing evidence. Hatcher v. Hatcher , 188 Ariz. 154, 159, 933 P.2d 1222, 1227 (App. 1996) ; see also Guthrie v. Guthrie , 73 Ariz. 423, 426, 242 P.2d 549 (1952) (separate property remains separate if it can be identified). As applied here, that means the non-injured spouse must establish the amount of the personal-injury settlement to which the community is entitled—if any. See Valento , 225 Ariz. at 481, 240 P.3d at 1243 ("When the community contributes capital to separate property, it acquires an equitable lien against that property."); Hanrahan v. Sims , 20 Ariz. App. 313, 318, 512 P.2d 617 (1973) ("The remedy of the possessor of an equitable lien is to come into a court of equity and have his lien recognized, declared, and if necessary, enforced.").

¶10 Because Husband’s separate property—his body—sustained the injury, the presumption is that any proceeds awarded to him for his "cause of action" remain his separate property until proven otherwise by the non-injured spouse. Jurek , 124 Ariz. at 598, 606 P.2d at 814. Accordingly, it was Wife’s burden to establish the amount of the settlement to which the community was entitled.

¶11 The Dissent maintains that we put too much weight on the dispositional paragraph in Jurek to overcome the "enduring precedent" of what constitutes acquired property. Infra, at ¶¶ 27–28. We can hardly be faulted for ordering the exact same relief as our supreme court ordered in Jurek with the same instructions to the superior court. Jurek , 124 Ariz. at 598–99, 606 P.2d at 814–15 ("The superior court should determine the actual loss to the community .... [and] [t]he remainder of any recovery, after deduction of the community expenses and loss, shall be awarded to the appellant as his sole and separate property."); see Resolution Tr. Corp. v. Segel, 173 Ariz. 42, 44, 839 P.2d 462, 464 (App. 1992) (a statement from a court expressly declaring a guide for future conduct is considered authoritative and must be followed). Likewise, courts reviewing Jurek claims have followed the dispositional order of the court.³ If our supreme court wishes to modify its holding in Jurek , it is certainly free to do so; but we are not.⁴ City of Phoenix v. Leroy’s Liquors Inc., 177 Ariz. 375, 378, 868 P.2d 958, 961 (App. 1993) (court of appeals is bound by decisions of the supreme court and may not "overrule, modify, or disregard them"); Powers v. Taser Int’l, Inc ., 217 Ariz. 398, 404, ¶ 21, 174 P.3d 777, 783 (App. 2007) (same).

¶12 The court erred by awarding Wife half of the personal-injury awards without evidence that the community was entitled to any of the award. On appeal, Husband recognizes some portion of the awards may represent community reimbursement. We, therefore, vacate and remand that portion of the decree allocating to Wife a part of the injury settlements. On remand, Wife may seek to prove what portion of the awards were reimbursement to the community, and the remainder shall be awarded to Husband as his separate property.

B. The Superior Court Correctly Characterized Husband’s Business Assets as Separate Property.

1. Husband’s Business is His Separate Property.

¶13 On cross-appeal, Wife argues the superior court erred by awarding the business to Husband as his separate property. Specifically, Wife argues the court erred when it "lost sight of the marital asset actually at issue," the corporate entity, and focused instead on the accounts, building, and property held by the corporation. We disagree that this distinction is material. "[I]ncorporation during marriage d[oes] not transmute the...