Opinion
No. 1 CA-CV 17-0111 FC
01-24-2019
In re the Marriage of: MURALI KADIYALA, Petitioner/Appellee/Cross-Appellant, v. NEELIMA VEMULAPALLI, Respondent/Appellant/Cross-Appellee.
COUNSEL Law Office of Louis Lombardo PC, Chandler By Louis K. Lombardo Counsel for Petitioner/Appellee/Cross-Appellant Neelima Vemulapalli, Chandler Respondent/Appellant/Cross-Appellee
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. FC2014-095577
The Honorable James D. Smith, Judge
AFFIRMED IN PART; REVERSED AND REMANDED IN PART
COUNSEL Law Office of Louis Lombardo PC, Chandler
By Louis K. Lombardo
Counsel for Petitioner/Appellee/Cross-Appellant Neelima Vemulapalli, Chandler
Respondent/Appellant/Cross-Appellee
MEMORANDUM DECISION
Judge Peter B. Swann delivered the decision of the court, in which Presiding Judge Kenton D. Jones and Judge David D. Weinzweig joined. SWANN, Judge:
¶1 Neelima Vemulapalli ("Wife") appeals from the superior court's decree and final order dissolving her marriage to Murali Kadiyala ("Husband"). Wife argues the court erred by (1) relying on a disclaimer deed in finding the marital residence is Husband's separate property and the court's subsequent award of an equitable lien to Wife, (2) finding that Husband did not commit marital waste, and (3) denying her request for attorney's fees. Husband cross-appeals, arguing the court erred by (1) ordering that Wife retain their child's travel documents, (2) finding that Husband failed to establish that funds in a community bank account were his separate funds, (3) failing to designate that only Wife's community interest in any foreign-held property would be subject to division, and (4) ordering him to pay all of the Special Master's fees. For reasons that follow, we vacate the court's equitable lien on the community's interest in the marital residence, and remand the issue for reconsideration consistent with this decision. We otherwise affirm the court's decree and final order.
Husband died while this appeal was pending. We address the financial issues raised on appeal and cross-appeal but find the issue regarding the child's travel documents is now moot.
FACTS AND PROCEDURAL HISTORY
¶2 The parties married in 2007, and have one child born in 2012. Husband petitioned for dissolution in 2014. The court held a two-day trial in late 2015, and issued a dissolution decree in August 2016. After both parties filed post-judgment motions, the court held an additional evidentiary hearing in December 2016, and issued a final order later that month. Wife appeals both the decree and the final order, and Husband cross-appeals.
DISCUSSION
I. PROPERTY DIVISION
¶3 We review the court's allocation of property for abuse of discretion, but because the court's characterization of property is a conclusion of law, we review it de novo. In re Marriage of Pownall, 197 Ariz. 577, 581, ¶ 15 (App. 2000). "We view the evidence in the light most favorable to sustaining the court's findings and determine whether there was evidence that reasonably supports the court's findings." Gutierrez v. Gutierrez, 193 Ariz. 343, 346, ¶ 5 (App. 1998).
A. While the Court Did Not Err by Finding the Disclaimer Deed Valid, It Did Err by Failing to Consider the Community's Down Payment When Calculating Wife's Equitable Lien.
¶4 Wife argues the disclaimer deed was invalid because (1) she signed the deed under duress, (2) Husband fraudulently represented that he would put her name on the deed but failed to do so, and (3) the deed incorrectly stated that Husband purchased the house with separate funds. Wife alternatively contends that even if the deed is valid, the court nevertheless erred by failing to include the community's down payment in its calculation of her equitable lien.
¶5 The parties purchased a house in Chandler during the marriage. To receive more favorable financing terms, Wife signed a disclaimer deed, which stated in relevant part that "[t]he property . . . is the sole and separate property of [Husband] having been purchased with the separate funds of [Husband]." Both parties testified at trial, however, that the funds for the $50,000 down payment came from community income. The parties also used community income to pay down the mortgage.
¶6 Before trial, Wife argued that the disclaimer deed should be deemed void because it incorrectly stated that the down payment came from Husband's separate property. During trial and in her post-decree motions, Wife reshaped her argument, contending instead that the disclaimer should be void because Husband had told her she would have "joint ownership notwithstanding the deed," which may have constituted fraudulent inducement. Based on the disclaimer deed, Husband argued that the house was his separate property and the community was entitled to an equitable lien for any value contributed to the house with community funds after Wife signed the disclaimer deed. The superior court found that Wife had not proven the deed was invalid due to fraud or mistake and awarded the house to Husband. The court then found that Wife was entitled to an equitable lien on the property based on Husband's calculations, and did not include the down payment in the lien.
¶7 Property acquired during the marriage is presumed to be community property. See A.R.S. § 25-211(A). The party seeking to rebut that presumption has the burden of establishing the separate nature of the property by clear and convincing evidence. Schickner v. Schickner, 237 Ariz. 194, 199, ¶ 22 (App. 2015). Absent fraud or mistake, a signed disclaimer deed rebuts the presumption that the house was community property. Bell-Kilbourn v. Bell-Kilbourn, 216 Ariz. 521, 524, ¶ 11 (App. 2007). The party seeking to invalidate such a deed must then prove by clear and convincing evidence that the deed is the result of fraud or mistake. Powers v. Guaranty RV, Inc., 229 Ariz. 555, 562, ¶ 27 (App. 2012). Even if a disclaimer deed is valid and the house is one spouse's separate property, the community may nevertheless be entitled to a share of any added equity on the house attributable to the community's expenditure of funds. Honnas v. Honnas, 133 Ariz. 39, 40 (1982); Bell-Kilbourn, 216 Ariz. at 524, ¶ 12.
¶8 On appeal, Wife first argues the disclaimer deed is invalid because she signed it under duress. According to Wife, she was generally afraid of Husband and she signed the deed two months after a domestic violence incident. She did not allege Husband threatened her into signing the deed. Rather, both parties testified Wife signed the disclaimer deed to obtain more favorable financing and expedite the transaction. The evidence, viewed in the light most favorable to sustaining the judgment, did not establish that Wife was in such fear as to preclude the exercise of her free will. See Dunbar v. Dunbar, 102 Ariz. 352, 355-56 (1967) (holding duress requires a wrongful threat that places the other party in such fear as to preclude the exercise of his or her free will and judgment).
¶9 Wife also alleges Husband fraudulently represented to her that he would put her name on the deed, but failed to ever do so. Wife pointed to emails in which Husband told their broker that "[Wife] will be on the title but not [the] loan." But the court rejected Wife's fraud claim, finding that she failed to sufficiently plead fraud before trial, and that, even if she had sufficiently pleaded the defense, her evidence did not establish fraud by clear and convincing evidence. See Powers, 229 Ariz. at 562, ¶ 27; see also Bender v. Bender, 123 Ariz. 90, 94 (App. 1979). While Wife presented evidence that Husband told the broker to place both parties' names on the title, there was also uncontroverted evidence that the parties later decided Wife should disclaim her interest to receive more favorable financing. Accordingly, the court did not abuse its discretion by finding Wife did not establish by clear and convincing evidence that Husband fraudulently induced her signature on the deed. See Bell-Kilbourn, 216 Ariz. at 524, ¶ 10.
Although the court stated that Wife's email evidence is "parol evidence that would vary/contradict the terms of the disclaimer deed," and that it "will not rely on those materials to invalidate the disclaimer deed," the court nevertheless considered the evidence and concluded that it "is not sufficient." Therefore, to the extent the court may have erred by finding that the parol evidence rule barred consideration of evidence indicating that Wife was fraudulently induced into signing the deed, it is irrelevant because the court considered the evidence. See Bender, 123 Ariz. at 93-94 (treating a disclaimer deed similarly to a contract); see also Lusk Corp. v. Burgess, 85 Ariz. 90, 93 (1958) (admitting parol evidence to show fraud in the inducement of a contract).
¶10 Wife finally argues the deed is invalid because it incorrectly states that Husband purchased the house with separate funds. The character of the property used for the down payment of a house is not determinative of the validity of the disclaimer deed. Id. at 523-24, ¶ 9. Because Wife's argument relies on the community character of the funds used for the down payment, her argument fails.
¶11 Alternatively, Wife contends that even if the deed is valid, the court nevertheless erred by failing to include the community funds used for the down payment when calculating the equitable lien. Both parties testified that the down payment came from community funds. The court rejected Wife's request to include the down payment in the lien because the deed recites that the house was purchased with Husband's separate funds, and the court declined to adopt an approach that contradicted the text of the deed. The court then found Wife did not provide the necessary evidence for the court to calculate the equitable lien pursuant to the value-at-dissolution formula set forth in Drahos v. Rens, 149 Ariz. 248, 250 (App. 1985), and accepted Husband's proposed lien amount. See Valento v. Valento, 225 Ariz. 477, 482, ¶ 13 (App. 2010) (setting forth a formula for determining community's equitable lien as "C + [C/B x A]; where A = appreciation in value of the property during the marriage, B = value on the date of marriage, and C = community contributions to principal").
¶12 The purpose of a disclaimer deed in this context is to allow a spouse to disclaim any potential community interest he or she may have by nature of the marriage in the marital residence, thereby making the residence the separate property of the other spouse. Bell-Kilbourn, 216 Ariz. at 524, ¶ 10; Bender, 123 Ariz. at 94. And the purpose of an equitable lien is to reimburse the non-owning spouse for the community's contributions to the equity of the owning spouse's separate property. Valento, 225 Ariz. at 481-82, ¶ 12-13 (courts consider community contributions to reducing the principal or loan balance and to enhancing the value of the house); Bell-Kilbourn, 216 Ariz. 524, ¶ 12 (same); Drahos, 149 Ariz. at 249 (same).
¶13 Here, the parties' agreement that the down payment was made with community funds—while it does not invalidate or defeat the transfer of title effected by the disclaimer deed—eliminates any dispute of fact as to the character of the property used to reduce the loan's principal. Although the disclaimer deed recites otherwise, it does not trump the undisputed facts at trial for purposes of calculating an equitable lien. See Wick v. Wick, 107 Ariz. 382, 385 (1971) (holding that the court has an obligation to fairly and equitably allocate community property and is "not foreclosed from doing so by the parties' [agreements]"). Accordingly, the court abused its discretion by not considering the agreed-upon community down payment when calculating the communities' equitable lien.
¶14 Husband appears to argue that an equitable lien calculation under Drahos includes only those additions to the house's equity that occur after the disclaimer deed was signed. But Drahos and its progeny do not delineate between post-purchase mortgage payments and down payments on separate property; rather, the lien formula plainly considers "community contributions to principal," which we interpret to include both mortgage and down payments. See Valento, 225 Ariz. at 482, ¶ 13 (citing Drahos, 149 Ariz. at 250, and Honnas, 133 Ariz. at 40-41).
¶15 On remand, in determining the value of the community's equitable lien, the court must include the down payment to the extent it reduced the principal. To hold otherwise would deny Wife her interest in the community funds and provide Husband a windfall. See Wick, 107 Ariz. at 385.
B. Wife Failed to Establish Community Waste.
¶16 Wife contends the court erred by concluding she did not establish that Husband committed community waste. See A.R.S. § 25-318(C).
¶17 Throughout the course of the marriage, both parties sent community funds to their individual families in India. Wife argued at trial that Husband committed community waste because he could not account for over $300,000 of community funds and he sent more money to his family than Wife did. Husband denied the waste allegation, asserting Wife's accounting was erroneous and both parties knowingly sent similar—if not equal—amounts of community funds to their families. To determine exactly how much money each party withdrew during the marriage and where that money went, the court appointed a family law special master to review the financial records offered at trial. See ARFLP 72(A) (authorizing the court to appoint a family law master to address particular issues within the master's area of expertise).
We cite to the version of Rule 72(A) in effect at the time of the appointment, in January 2016. Notably, the 2016 version then allowed the court to appoint a special master "on [its] own motion." ARFLP 72(A) (2016).
¶18 The special master found that both parties sent money to their families from joint and individual accounts, and, contrary to Wife's allegations of community waste, Husband's "unaccounted for" withdrawals were actually transfers between various bank accounts. The special master also found that both parties made unidentified withdrawals, and overall, each withdrew nearly identical amounts from their individual bank accounts during the marriage. Neither party objected to the report, and the court accepted the special master's findings that there was no community waste. See ARFLP 72(G).
¶19 Wife failed to establish that Husband's expenditures were excessive or abnormal. See Gutierrez, 193 Ariz. at 346, ¶ 7 (holding spouse alleging marital waste has burden of making prima facie showing of waste). The record indicates that Husband and Wife regularly sent money to extended family in similar amounts, and that such payments were a normal community expense for the couple, not marital waste. And while Wife implies that payments to her family came from her separate property because they came from her "sole account," she did not establish that her individual bank account held only sole and separate funds. See id. Nor did Wife otherwise establish that Husband had excessive or abnormal expenditures. Accordingly, we affirm the denial of Wife's claim of community waste.
C. Husband Did Not Establish the Separate Property Character of Commingled Funds.
¶20 Husband argues the court erred by finding he failed to establish that approximately $24,000, held in two bank accounts containing commingled funds, was his premarital separate property.
¶21 Husband claimed that before the marriage, he had a Citibank account with a balance of $56,618. In 2012, five years after the parties married, he transferred these separate funds into his two Bank of America accounts. Husband also deposited community funds into these two Bank of America accounts and transferred funds from these accounts to other accounts during the marriage. Husband claimed that because the two Bank of America accounts never fell below a combined balance of $24,741, he was entitled to that amount as his premarital separate funds.
¶22 "[W]here separate and community funds are so [commingled] that they become indistinguishable, they are presumed to be community property." Martin v. Martin, 156 Ariz. 440, 443 (App. 1986). If the party claiming the separate property interest can trace the commingled funds with clear and satisfactory evidence, the property retains its separate character. Id. Here, the two Bank of America accounts contained both community and separate funds. We agree with the court that by merely pointing to the minimum balance of the commingled bank accounts, Husband did not meet his burden to trace his commingled funds.
¶23 Husband argues that this court should follow Texas law and presume that where community and separate funds are commingled in a joint account, the community funds are withdrawn first. See Smith v. Smith, 22 S.W. 3d 140, 146 (Tex. App. 2000). Such a presumption, however, would conflict with well-settled Arizona law providing, as discussed above, that the spouse claiming commingled funds are separate property has the burden of proving the separate property character of those funds by clear and satisfactory evidence. See Cooper v. Cooper, 130 Ariz. 257, 259-60 (1981). We decline to abandon binding Arizona law, and we affirm the court's ruling.
D. The Court Properly Addressed the Real Property in India.
¶24 Husband argues that the court erred by declining to clarify that only community property obtained during the marriage will be held by the parties as tenants in common.
¶25 "[O]n the eve of trial," Wife claimed to have discovered that Husband had acquired an interest in real property in India during the marriage. Husband denied the claim. Considering Wife's claim, the court's decree provided that any subsequently discovered property would be deemed to have been held by the parties as tenants in common.
¶26 In her motion for new trial, Wife provided new evidence purporting to show that Husband, in fact, had acquired real property in India during the marriage. In response, Husband conceded, in direct contradiction to his pretrial position, that he did own an interest in real property in India, albeit only a beneficiary interest. He requested that the superior court clarify the decree so that the parties only hold any undisclosed "community property" as tenants in common, noting his concern that otherwise the order could be misinterpreted by Indian courts as "relating to all properties [Husband] may own or inherit in India in the future." At oral argument on Wife's motion for new trial, Husband sought to clarify that Wife had an interest only in property acquired during the marriage, not in any after-acquired property. The court's final order included a legal description of the property and stated that the parties "now hold as tenants in common any interest in the foregoing property that [Husband] obtained between November 21, 2007 and October 8, 2014."
¶27 Husband now argues this order did not clarify that Wife only has an interest in whatever "community property" interest Husband acquired, implying that he may still litigate whether the previously undisclosed property interest is community or separate. This is a different position than Husband took below, where he sought to clarify that Wife's interest was only in property acquired during the marriage, as opposed to after-acquired property.
¶28 As a result of Husband's initial denial of any interest in this property, the nature of his interest was never litigated, so it is presumed to be community property. See A.R.S. § 25-211(A). Because Husband failed to offer any evidence to rebut this presumption, see Schickner, 237 Ariz. at 199, ¶ 22, any interest he acquired in the Indian property identified in the order was community property, and there was no reason to include the language Husband proposed. We therefore find no abuse of discretion. II. ATTORNEY'S AND SPECIAL MASTER'S FEES
A. The Court Did Not Abuse Its Discretion by Denying Attorney's Fees And Ordering Husband To Pay The Special Master's Fees.
¶29 Wife contends the court abused its discretion by denying her request for attorney's fees, and on cross-appeal, Husband contends the court abused its discretion by ordering him to pay all of the special master's fees. We review an award of attorney's fees under A.R.S. § 25-324, and an allocation of special master's fees under ARFLP 72(A) for an abuse of discretion. Gutierrez, 193 Ariz. at 351, ¶ 32; ARFLP 72(A) (giving the family court discretion on allocating special master's fees).
On appeal, Wife cites statutes and rules of procedure she did not cite with the superior court. We decline to consider an argument raised for the first time on appeal. See Shah v. Vakharwala, 244 Ariz. 201, 204, ¶ 14 (App. 2018).
¶30 The superior court declined to award attorney's fees to either party here, finding there to be no significant financial disparity and that neither party acted unreasonably. The record supports this conclusion. We defer to the weight the superior court gave to Wife's allegations of other unreasonable conduct. See Gutierrez, 193 Ariz. at 347, ¶ 13. Viewing the evidence in the light most favorable to upholding the judgment, we cannot say the court abused its discretion by denying Wife's request for attorney's fees. See id. at 346, ¶ 5.
¶31 In allocating all of the special master's fees to Husband, the superior court noted that, but for Husband's use of concealed accounts during the marriage, there would have been no need to appoint a special master. The evidence presented on this issue was conflicting. The special master noted that the amount of Wife's waste allegation was implausible based on Husband's historic earnings and that Husband had disclosed his statements from the concealed accounts at some point during the litigation. On the other hand, there was evidence that Husband never provided documents relevant to his money transfers to India, and that he sought to present previously undisclosed exhibits on the second day of trial, further complicating the complex financial issues at trial. Because reasonable evidence supports the court's allocation of the special master's fees, we affirm.
B. We Deny Husband's Request for Attorney's Fees on Appeal.
¶32 Husband argues that he is entitled to an award of attorney's fees under A.R.S. § 25-324 and ARCAP 21 because Wife acted unreasonably on appeal. Wife did not take unreasonable positions on appeal and, in the exercise of our discretion, we deny Husband's request for attorney's fees.
CONCLUSION
¶33 For the foregoing reasons, we vacate the court's equitable lien calculation and remand for reconsideration consistent with this decision. In all other respects, we affirm the decree and subsequent final order.