McPhaul v. McPhaul

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

In Re the Matter of:

DANELL MCPHAUL, Petitioner/Appellant,

v.

STEPHANIE MCPHAUL, Respondent/Appellee.

No. 1 CA-CV 22-0748 FC
FILED 8-22-2023

Appeal from the Superior Court in Maricopa County
No. FC2021-070292
The Honorable Susanna C. Pineda, Judge

AFFIRMED IN PART; VACATED IN PART AND REMANDED

COUNSEL

Michael & Casey, Your AZ Lawyer, Phoenix
By Sarah J. Michael, Robert I. Casey
Counsel for Petitioner/Appellant

Lincoln & Wenk, PLLC, Goodyear
By Russell F. Wenk, Katherine M. Silvestri
Counsel for Respondent/Appellee
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MEMORANDUM DECISION

Judge Samuel A. Thumma delivered the decision of the Court, in which
Presiding Judge D. Steven Williams and Judge Paul J. McMurdie joined.

T H U M M A, Judge:

¶1 Petitioner Danell O. McPhaul (Husband) appeals from a
decree dissolving his marriage to Stephanie R. McPhaul (Wife). As
applicable here, the decree requires that Husband provide Wife half the
equity in a home, that each party be responsible for half of a U.S. Bank/Fry’s
credit card balance and that Husband pay Wife’s attorneys’ fees. Because
the decree is unclear how the home was held at the time of service of the
petition, the allocation of the home and resulting fee award is vacated.
Because Husband has shown no error in the allocation of credit card debt,
that portion of the decree is affirmed.

FACTS AND PROCEDURAL HISTORY

¶2 Husband and Wife were in a long-term relationship before
marrying in 2017. In 2012, they purchased and financed a home as joint
tenants with the right of survivorship. The deed states that they bought the
home “not as tenants in common, nor as community property, nor as
community property with right of survivorship, but as joint tenancy with
right of survivorship.”

¶3 Over time, they sometimes fell behind on payments and
refinanced the home loan. As applicable here, in 2015 (after they had
refinanced the loan at least once), they refinanced the loan by consolidating
the home loan with a car loan and, in doing so, receiving about $6,000 in
cash. As part of that 2015 refinancing, Wife signed a warranty deed
conveying her interest in the home to Husband. The parties would later
dispute the reason for Wife’s warranty deed. Husband argued Wife did so
to receive a benefit by being removed from the repayment obligation and
receiving about $6,000 from the refinancing plus other compensation
totaling about $7,000. Wife argued the transaction “was done in Husband’s
name alone due to Wife’s lack of income and credit score. However, the
parties intended to transfer the title back to both of their names jointly.”
Title to the home, however, was never transferred back to both of their
names jointly.

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¶4 In 2017, the couple married. In 2021, Husband petitioned for
dissolution, with his petition inconsistently listing the home as being
“acquired community property during our marriage” that should be
awarded to him and as being his “separate property that was brought into
this marriage.” Wife’s response denied that the home was Husband’s
separate property, affirmatively stating that the home “was purchased by
both parties prior to the marriage and is titled in both parties’ names as Joint
Tenants with Right of Survivorship.”

¶5 Later, Husband’s proposed resolution management
statement stated (1) the home was community property, asking that he be
awarded the home with Wife taking an equitable offset “for her portion of
a community lien;” and (2) during the marriage, Wife had fraudulently
opened a U.S. Bank/Fry’s credit card in his name and asked the court to
assign her the debt. Wife’s response (1) asserted that she “has a community
interest in the” home, which was “initially purchased by both parties and
subsequently refinanced into Husband’s name” and (2) did not specifically
reference the U.S. Bank/Fry’s credit card debt, but stated “[t]he parties
should be equally responsible for” Wife’s credit cards.

¶6 The parties’ joint pretrial statement included (1) Husband’s
position that the “parties are in agreement” that he should be awarded the
home “with equitable offset to” Wife “for her portion of a community lien,”
stating Husband paid Wife for her interest in the home during the 2015
refinancing and (2) Wife’s position that Husband should be awarded the
home “subject to a community lien,” adding that the parties “agree Wife
has a community interest in the [home], the amount of which remains in
dispute” and stating the 2015 refinancing was “to lower their monthly
payment” and that “for reasons unknown to Wife, the Warranty Deed
transferring the [home] back in to both of their names was never executed
and the home has remained in Husband’s name alone since.” The parties’
positions on the credit card debt apparently were unchanged.

¶7 At a three-hour trial in June 2022, Husband, Wife and the loan
officer for the 2015 refinancing testified. When Husband was asked whether
the 2015 refinancing was to “buy the marital residence and obtain [the
home] as your sole and separate property,” he answered “Yes.” Husband
testified Wife received a cash-out amount as a payout for signing the home
over to him. Husband also testified that he had “done additional
refinances” after the 2015 refinancing, but Wife was not “added back onto
the residence,” and they had not discussed doing so. Husband also testified
that Wife was entitled to around $8,000 of the equity representing her
portion of a community lien. See Drahos v. Rens, 149 Ariz. 248, 249–50 (App.

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1985) (allowing the community an equitable lien for community
contributions to separate property).

¶8 Husband testified Wife opened the U.S. Bank/Fry’s credit
card account in his name, without his knowledge, and that she should be
responsible for the debt. On cross-examination, Husband admitted that the
charges on the credit card were not waste.

¶9 The loan officer testified that Wife may have been removed
from the deed as part of the 2015 refinancing so that the couple might
receive a better interest rate. He also testified that email messages with and
about Wife at the time (stating “remove and then add [Wife] back on”)
“kind of indicates, to me, that, you know, that it’s not a buyout, you know,
at that point, . . . .” The loan officer added that “[o]n two separate occasions”
the title company was given instructions to make sure a deed was signed
adding Wife’s name back the day after the 2015 refinancing but that
mistakenly did not occur.

¶10 Wife testified that her 2015 deed to Husband was to allow
them to have a better debt-to-income ratio and receive a better interest rate
on the refinanced loan. Wife also testified that the car loan consolidation
was for a car mainly driven by Husband and the $6,000 in cash received
was used to pay off credit card debt. Wife acknowledged that Husband did
not know about the U.S. Bank/Fry’s credit card, but stated that it was only
used for daily expenses of the community during the marriage.

¶11 After taking the matter under advisement, the court issued an
18-page decree. In summarizing the evidence, the decree stated that the
parties were not married when they bought the home or at the time of the
2015 refinancing, “and thus, the [home] was never a community asset.” The
decree stated the home “was Husband’s sole and separate property as a
result of Wife’s conveyance to him of her interest in the residence. However,
the intent of the parties was that the property was to be conveyed back to
both parties as tenants in common.”

¶12 Later, in findings about real property, the decree states that
the home “is the separate property of [Husband] with community interest.”
The next sentence states the home “is jointly owned by the parties as tenants
in common. Each party is entitled to 1/2 the equity in the” home. The decree
continued, including finding that an equal division of property was
equitable, stating

that the [home] . . . was fully intended to be
owned jointly by the parties as tenants in

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common. While the residence is deeded to
Husband, each party is entitled to 1/2 the
equity in the residence. . . . Pursuant to [Femiano
v. Maust], 248 Ariz. 613 (App. 2020), the Court
finds that both parties have contributed to the
maintaining of the property and are entitled to
an equitable lien for the full increase in equity in
the home. [Drahos] is inapplicable because
neither party can be said to have contributed
separate funds to the refinancing of the home.
Both contributed to the home when originally
purchased and have continued to do so after the
2015 refinancing.

The decree ordered the parties to hire a home appraiser and for Husband
to pay Wife half of the equity based on that appraisal.

¶13 In addressing the credit card debt, the decree noted
Husband’s claim that the card was obtained without his permission, also
noting Husband “admits that the expenditures were community in nature.”
Thus, the decree ordered that each party was responsible for half of the
debt.

¶14 The decree also found that Husband had acted unreasonably
when he argued that the purpose of the 2015 refinancing was to buy out
Wife’s equity, adding half the equity at the time of the 2015 refinancing
would have been about $40,000, far more than what Husband alleged wife
received. Concluding Husband had knowingly made a false statement, the
decree awarded Wife her reasonable attorneys’ fees as a sanction under
Arizona Revised Statutes (A.R.S.) § 25-415(A) (2023).1

¶15 This court has jurisdiction over Husband’s timely appeal
under Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-
120.21(A)(1) and -2101(A)(1).

1 Absent material revisions after the relevant dates, statutes and rules cited

refer to the current version unless otherwise indicated.

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DISCUSSION

¶16 Husband argues the court erred in awarding Wife half the
equity in the home because she signed a warranty deed conveying the
property to him as part of the 2015 refinancing before they were married.
Relatedly, he argues the court erred in awarding attorneys’ fees against him
because his arguments about the 2015 refinancing were not unreasonable.
He also argues the court incorrectly assigned him half of the credit card
debt because Wife opened the card in his name without his consent. This
court addresses the arguments in turn.

¶17 The classification of property is reviewed de novo. In re
Marriage of Pownall, 197 Ariz. 577, 581 ¶ 15 (App. 2000). Apart from property
held as community property, “[a] joint tenancy is an estate held by two or
more persons jointly, each having an equal right to its enjoyment during his
or her life,” with right of survivorship. In re Estelle’s Est., 122 Ariz. 109, 111
(1979). When property is conveyed to two or more people without
otherwise-defining language, it is held as tenants in common, without right
of survivorship. A.R.S. § 33-431(A)–(B). Although “a residence which is
separate property does not change its character because it is used as a
family home and mortgage payments are made from community funds,”
that circumstance may entitle the community to an equitable lien on the
property. Drahos, 149 Ariz. at 249–50. “The determination of the amount of
the community interest in separate property resulting in an equitable lien
is a mixed question of fact and law,” meaning this court will “defer to the
trial court’s factual findings but review legal conclusions de novo.” Saba v.
Khoury, 253 Ariz. 587, 590 ¶ 7 (2022) (citations omitted).

¶18 The decree describes ownership of the home in several
different ways, some of which conflict with the trial record. As noted above,
in 2012, the original warranty deed stated that the couple originally bought
the home “not as tenants in common, nor as community property, nor as
community property with right of survivorship, but as joint tenancy with
right of survivorship.” Although noting this joint tenancy, the decree also
states that “[a]t the time of purchase, the home was purchased by the parties
as joint tenants in common.”

¶19 The decree later, in the findings, states that the home (1) “is
the separate property of” Husband “with community interest” and (2) “is
jointly owned by the parties as tenants in common,” also making it separate
property (although of both spouses). In imposing a community lien, the
decree cites Femiano v. Maust, 248 Ariz. 613 (App. 2020) and states “both
parties have contributed to the maintaining of the [home] and are entitled

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to an equitable lien for the full increase in equity in the home.” An equitable
lien, however, is a mechanism that allows the community to be reimbursed
for its contributions to a spouse’s separate property. Saba, 253 Ariz. at 590 ¶
8. Arizona courts have regularly used the Drahos formula, refined in Barnett
v. Jedynak, 219 Ariz. 550 (App. 2009), which accounts for that community
contribution and allocates a percentage of the appreciation in value of the
separate property to the community based on its contribution. Saba, 253
Ariz. at 591 ¶¶ 11–13.

¶20 In Femiano, a couple bought a home during their marriage, but
one spouse disclaimed any interest in that property during the marriage.
248 Ariz. at 615 ¶ 3. Community funds were used for the down payment
and all subsequent loan payments. Id. The court held that because the
community made all the payments, it was entitled to an equitable lien for
the full amount of the equity. Id. at 617 ¶ 21. Here, unlike Femiano, the home
was bought five years before the marriage, with the down payment and five
years of loan payments made with separate funds. And even if Femiano
applied to these facts, the Arizona Supreme Court recently disapproved of
Femiano, explaining “the object [of the community lien] is a fair
reimbursement of community funds, not an equitable division of property.” Saba,
253 Ariz. at 593 ¶ 19. Thus, the community was not entitled to an equitable
lien for the full increase in equity based solely on the finding that both
parties contributed to maintaining the home.

¶21 The decree is unclear as to (1) how the property was held at
the time of the service of the petition for dissolution and (2) whether the
conclusion giving each spouse half of the “full increase in equity in the
home” was based on a community interest analysis or some other basis.
Thus, that portion of the decree addressing the home is vacated and
remanded for further proceedings. On remand, the court may first
determine how the home was held at the time of the service of the petition
for dissolution. On the record presented, the possible options appear to
include that the home was held as: (1) joint tenants with a right of
survivorship, meaning there was no actual conveyance from Wife to
Husband before the 2015 refinancing, see In re Estelle’s Est., 122 Ariz. at 111
(discussing four unities required to create joint tenancy); (2) tenants in
common, meaning there was a reconveyance from Husband back to Wife
after the 2015 refinancing, see A.R.S. § 33-341(A); or (3) the separate property
of Husband, meaning there was no re-conveyance after the 2015
refinancing. Depending on the outcome of that determination, the court
may next award the parties the appropriate interest in the home, subject to
the statutory authority of the court in this proceeding. See A.R.S. § 25-318(A)
(noting, with an exception not applicable here, that “the court shall also

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divide the community, joint tenancy and other property held in common
equitably, though not necessarily in kind”). Although once those
determinations are made, the court may revisit the award of attorneys’ fees,
the award of attorneys’ fees is vacated without prejudice pending the
outcome of those determinations.

¶22 As to the credit card, “spouses have equal management,
control and disposition rights over their community property and have
equal power to bind the community.” A.R.S. § 25-214(B). “[A]ll debt
incurred by either spouse during marriage is presumed a community
obligation.” Flower v. Flower, 223 Ariz. 531, 535 ¶ 12 (App. 2010) (citation
omitted). Neither party disputes the debt was incurred during the
marriage. Wife testified and the court found that the debt was incurred to
benefit the community. Although Husband claims Wife applied for the
credit card in his name, given the debt benefitted the community, that does
not change the analysis. See Cadwell v. Cadwell, 126 Ariz. 460, 463 (App. 1980)
(noting that “case law has recognized community liability for the fraud of
one member” when it benefits the community). Father has not shown that
the court erred in finding the debt was a community liability and dividing
it equally.

CONCLUSION

¶23 The decree’s allocation of the home, and the resulting award
of attorneys’ fees, is vacated and remanded for further proceedings. The
decree’s allocation the credit card debt equally is affirmed.

AMY M. WOOD • Clerk of the Court
FILED: AA

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