In re Helland
- Reporters:
- , ,
- Before:
- Lawrence F. Winthrop, Patricia K. Norris, John C. Gemmill
WINTHROP, Judge.
¶ 1 Kara D. Helland (Wife) appeals those portions of the superior court‘s Decree of Dissolution allocating a disability policy purchased by the marital community to Steven W. Helland (Husband) as his separate property. Wife also appeals the superior court‘s determination that she had not proven waste of the community-owned medical practice. Husband appeals that portion of the decree awarding spousal maintenance to Wife. For the following reasons, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶ 2 Husband and Wife were married in 1989. Husband worked as an anesthesiolo
¶ 3 After Husband‘s disability, he retrained as a pain management specialist and Husband and Wife established a pain management medical practice in Show Low, Arizona. Wife managed the business. As a result of Husband‘s unrelated criminal activities, the Arizona Medical Board revoked Husband‘s medical license in July 2011; thus, he could not continue to operate the medical practice. Before Husband‘s medical license was revoked, the parties sold the practice and the building in which it operated to another physician for $750,000.
¶ 4 Wife filed this dissolution action in November 2010. The superior court conducted a three-day trial concerning the division of community property and spousal maintenance. The court ruled that the income from the disability insurance policy became Husband‘s sole and separate property when the marriage was terminated by the filing of the dissolution action. The court rejected Wife‘s argument that Husband‘s criminal activities constituted waste that destroyed part of the value of the medical practice and denied her request for an equalization payment or credit. The court determined Wife was entitled to spousal maintenance pursuant to Arizona Revised Statutes (“A.R.S.“)
¶ 5 After the superior court ruled on Husband‘s post-trial motions, Wife timely appealed and Husband timely cross-appealed. We have jurisdiction pursuant to
ISSUES
¶ 6 Wife argues the superior court erred as a matter of law in concluding that the benefits received from the disability insurance policy after the termination of the marriage are Husband‘s sole and separate property. Wife also contends the court abused its discretion by ruling she failed to prove her claim of waste concerning the medical practice.
¶ 7 Husband challenges the court‘s decision to award Wife spousal maintenance. He also challenges the amount and duration of the award.
ANALYSIS
I. Division of Property
¶ 8 We apply an abuse of discretion standard when reviewing the superior court‘s division of property, but review the court‘s characterization of property de novo. In re Marriage of Pownall, 197 Ariz. 577, 581, ¶ 15, 5 P.3d 911, 915 (App.2000).
A. Disability Insurance Policy
¶ 9 Wife argues the superior court erred in ruling that the disability benefits Husband received after service of the petition were his sole and separate property.
¶ 10 The primary purpose of disability insurance is to insure against the risk of loss of the insured‘s future earning capacity. Hatcher v. Hatcher, 188 Ariz. 154, 158, 933 P.2d 1222, 1226 (App.1996). “While the marital community exists, a disabled spouse‘s reduced earning capacity results in a loss to the community. At dissolution, however, the loss to the community ceases and any reduced earning capacity becomes the separate
¶ 11 Generally, property acquired during the marriage is presumed to be community property, and property acquired after service of a petition for dissolution is presumed to be separate property.
¶ 12 Further, Wife‘s argument misapprehends the nature of a disability policy. Although the policy is contractual, it is not an annuity or other investment with an expected rate of return, as disability benefits are paid only under certain conditions and are contingent upon the insured‘s ongoing disability. Accordingly, the community did not acquire a right to future disability benefits payments when it purchased the policy. See generally Potthoff v. Potthoff, 128 Ariz. 557, 561, 627 P.2d 708, 712 (App.1981) (“‘Time of acquisition’ for purposes of community property means the time when ‘the right to obtain title occurs, not to the time when legal title actually is conveyed.‘” (citation omitted)).3
¶ 13 Wife contends the superior court erred by not following this court‘s decision in Flowers v. Flowers, 118 Ariz. 577, 578 P.2d 1006 (App.1978), in which we held that disability retirement benefits received from the United States Civil Service were community property subject to apportionment. Id. at 579, 578 P.2d at 1008. As we noted in Davies v. Beres, 224 Ariz. 560, 564 n. 6, ¶ 14, 233 P.3d 1139, 1143 n. 6 (App.2010), the reasoning of the Flowers decision is no longer sound because it was based on an Arizona rule—abandoned by the Arizona Supreme Court in Jurek—that damages recovered for personal injuries sustained during marriage were community property. For the same reason, we decline to follow the dicta set forth in Flowers that disability benefits purchased with community funds should be considered community assets. Flowers, 118 Ariz. at 581, 578 P.2d at 1010 (Jacobson, J., specially concurring).
¶ 14 Wife also asserts the superior court erred by relying on Bugh v. Bugh, 125 Ariz. 190, 192, 608 P.2d 329, 331 (App.1980), a decision in which we determined that worker‘s compensation benefits paid after dissolution are the worker‘s separate property. We reasoned that because worker‘s compensation is an award for lost earning capacity, not personal injuries or pain-and-suffering, compensation paid during the marriage replaces earnings that would otherwise belong to the community and is community property and compensation paid after dissolution is the worker‘s separate property. Id. Our decision in Bugh is limited to worker‘s compensation awards. Our analysis was consistent, however, with Arizona law concerning interpretation of the term “acquired” in
¶ 15 The superior court did not err by determining that the disability benefits received after the date of service of the petition are Husband‘s sole and separate property.
B. Waste of a Community Asset
¶ 16 Wife contends the superior court erred by rejecting her argument that Husband wasted a community asset by committing crimes that devalued the parties’ medical practice, resulting in a reduced sale price.4
¶ 17 The superior court is specifically authorized to consider a spouse‘s destruction of joint property when apportioning community property.
¶ 18 In this case, Wife alleged the revocation of Husband‘s medical license made it impossible for the community to continue the medical practice and the community was forced to sell the business at a non-market rate. The superior court found Wife did not sustain her burden to show that Husband‘s criminal acts devalued the medical practice.
¶ 19 The evidence showed that the parties sold the medical practice, after negotiations, to a third-party physician for $750,000 in March 2011. Husband testified it is very unusual for a medical practice to be sold, and he received more for the practice than he expected. Husband also offered expert testimony that the best indication of the medical practice‘s fair market value was the price a third-party buyer was willing to pay for it.
¶ 20 Although Husband‘s expert on cross-examination acknowledged that a theoretical valuation model based on the medical practice‘s assets would assign a value $190,000 higher than the sale price, that assessment is not inconsistent with his opinion that the actual sale price is the best measure of the company‘s value. Moreover, even if the practice was sold at a discount, Wife did not establish a prima facie case that the reduced price was due to Husband‘s criminal acts, especially given the evidence that there is a limited market for this type of business—a specialty medical practice in a rural area.
¶ 21 The superior court was free to accept or reject part or all of any expert‘s opinion in determining the value of the business. See State v. Bishop, 162 Ariz. 103, 107, 781 P.2d 581, 585 (1989) (stating that a trial judge is not required to wholly accept or reject expert testimony). We find no abuse of discretion in the superior court‘s determination Wife did not carry her burden to show Husband‘s criminal acts decreased the value of the medical practice and constituted waste of marital assets.
¶ 22 Husband contends the superior court erred in awarding Wife spousal maintenance and also challenges the amount and duration of the court‘s award. We review the award of spousal maintenance for an abuse of discretion and will affirm the judgment if there is any reasonable evidence to support it. Cullum v. Cullum, 215 Ariz. 352, 354, ¶ 9, 160 P.3d 231, 233 (App.2007).
A. Entitlement to Spousal Maintenance
¶ 23 As relevant here, Arizona Revised Statutes
2. Is unable to be self-sufficient through appropriate employment or is the custodian of a child whose age or condition is such that the custodian should not be required to seek employment outside the home or lacks earning ability in the labor market adequate to be self-sufficient.
. . . .
4. Had a marriage of long duration and is of an age that may preclude the possibility of gaining employment adequate to be self-sufficient.
¶ 24 The superior court may award spousal maintenance when any one of the statutory factors is present.
¶ 25 The superior court found Wife was entitled to an award of spousal maintenance because she is unable to be self-sufficient through appropriate employment, the marriage was of a long duration, and her age may preclude the possibility of gaining employment that would be adequate to allow her to be self-sufficient. Husband argues Wife is fully employable and received sufficient assets in the dissolution to provide for her reasonable needs.
¶ 26 Wife offered evidence that she suffers from post-traumatic stress disorder (PTSD), which prevents her from working. Her therapist testified that PTSD is a debilitating condition from which she did not expect Wife to recover for three to five years. Wife also presented the opinion of a rehabilitation counselor and life-care planner that, given Wife‘s age, work history, and medical condition, it is unlikely she will be able to return to work even if she recovers from her PTSD within three to five years. Husband argues that despite this evidence, the court erred because Wife is physically able to work, Wife‘s therapist testified that she expects Wife will make a full recovery, and Wife‘s therapist acknowledged that even a partial recovery would increase Wife‘s ability to function. Considering the entire record, Wife offered evidence to support the superior court‘s finding that, even after Wife recovers, she is unlikely to return to work.
¶ 27 The superior court also specifically considered the assets awarded to Wife in the dissolution, but found they were not sufficient to provide for her reasonable needs because while “significant in the abstract, ... a great portion of the assets are in retirement accounts, and much of the land and residential property is far from a liquid asset in this market.”5 See Cullum, 215 Ariz. at 354, ¶ 11, 160 P.3d at 233 (stating a court should not require a spouse seeking maintenance to “use up” property when determining if he or she is eligible for maintenance, but should consider the income potential of that property); Gutierrez, 193 Ariz. at 348, ¶ 20, 972 P.2d at 681 (holding spouse “should not be compelled to withdraw the money in the retirement account to supplement her modest income“). On this record, we find no abuse of discretion in the superior court‘s finding that Wife is entitled to an award of spousal maintenance.
¶ 28 If the superior court determines a spouse is entitled to an award of spousal maintenance, it must then consider the thirteen factors set forth in
¶ 29 Wife testified she had reduced her monthly expenses as much as she could, but her reasonable needs still totaled approximately $8,655, which, as established at trial, is consistent with the parties’ lifestyle during the marriage. A significant portion of the assets Wife received in the dissolution were held in retirement accounts that she could not access without penalty. At the time of trial, Wife was fifty-five years old and unable to work full-time for at least three to five years while she recovered from her mental health conditions. Moreover, Wife offered credible evidence that even if she recovered, her opportunities would be limited to an administrative/clerical position and it was unlikely she would find employment. Further, although Husband receives approximately $15,000 per month in disability benefits, his current monthly expenses are de minimus as a result of his incarceration. Given this evidence, we find no clear error in the superior court‘s decision to award Wife $5,000 per month as spousal maintenance.
¶ 30 We also reject Husband‘s argument that the court erred by awarding Wife spousal maintenance for a period of seven years. There was significant evidence that Wife is unlikely to ever return to work, given her age and mental health conditions. The court‘s award of spousal maintenance for seven years will continue until Wife is sixty-three, when she is more likely to be able to achieve financial independence through withdrawals from her retirement accounts and/or receipt of Social Security benefits.
¶ 31 Both Husband and Wife request an award of attorneys’ fees and costs on appeal pursuant to
CONCLUSION
¶ 32 For the foregoing reasons, we affirm.