MATTER OF WISCOMBE v. WISCOMBE

Nos. 1 CA-CV 16-0360 FC, 1 CA-CV 16-0418 FC, (Consolidated).

In re the Matter of: NAOMA WISCOMBE, Petitioner/Appellee, v. BRENT WISCOMBE, Respondent/Appellant/Appellee. CLOYD WISCOMBE, Defendant/Appellant.

Court of Appeals of Arizona, Division One.


Attorney(s) appearing for the Case

Naoma Wiscombe , American Fork, UT, Petitioner/Appellee.

Larson Law Office PLLC, Mesa, By Robert L. Larson , Counsel for Respondent/Appellant Brent Wiscombe.

Udall Shumway PLC, Mesa, By Roger C. Decker , Ryan P. Dyches , Counsel for Defendant Appellant Cloyd Wiscombe.

Judge Peter B. Swann delivered the decision of the court, in which Presiding Judge Randall M. Howe and Judge Patricia A. Orozco joined.


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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

MEMORANDUM DECISION

SWANN, Judge.

¶1 Brent Wiscombe ("Husband") and Husband's father, Cloyd Wiscombe ("Cloyd") (collectively "Appellants") appeal from a dissolution-of-marriage decree that awarded community property, spousal support, and attorney's fees in favor of Naoma Wiscombe ("Wife") and against Appellants. Two corporations, Tax 25, Inc., and Rewards Marketing, LLC, and one other person, John Solmes ("Solmes"), were also parties below but are not parties to this appeal. For the following reasons, we affirm the decree in all respects.

THE PARTIES

¶2 Husband and Wife married in 1984. Wife was a stay-at-home mother to the couple's six children and cared for two children from Husband's previous marriage. Cloyd was the owner of Tax Service, from which he made between $500,000 and $1 million per year. From 2010 to 2012, Husband was the General Manager of Tax Service. In January 2012, Husband borrowed $50,000 from Tax Service's bank account to start a new business, Tax 25. The money was used as a down payment on a $2 million loan from Cloyd to purchase Tax Service. Tax Service then became Tax 25.

¶3 Husband withdrew significant amounts of money from Tax 25 to fund Rewards Marketing, a joint venture based on an unwritten partnership agreement between Husband and Solmes. Husband sold off most of Tax 25's assets, including the tax offices which generated the company's revenues, and he invested the proceeds in Rewards Marketing. Both companies are now defunct.

FACTS AND PROCEDURAL HISTORY

¶4 Husband and Wife went to Las Vegas for Valentine's Day in 2015. After a fight, Husband left Wife in Las Vegas, arriving in Phoenix the morning of Sunday, February 15. Wife returned to Phoenix on Wednesday, February 18. That night, Husband overheard her speaking to one or more of their children discussing the possibility of divorce. On February 19, Husband transferred most of the assets in the marital residence including, inter alia, motorcycles, a boat, trailers, trucks, cars, appliances, and numerous pieces of furniture ("transferred assets") to Tax 25 to satisfy a $139,000 debt. The same day, Husband sold Tax 25 to Cloyd, including all of the Tax 25-owned transferred assets and the marital residence (title to which was held by Tax 25 starting in 2013), in exchange for Cloyd's forgiveness of the balance of the $2 million loan used to purchase Tax Service, which had an outstanding balance of $1,428,139.46.2 The same day, Husband sold his interest in Rewards Marketing to Solmes in exchange for Solmes agreeing to repay a $1,494,752.86 debt to Tax 25.3

¶5 After selling Tax 25 to Cloyd, Husband continued to receive a salary from the business and live in the Tax 25-owned marital residence. However, Cloyd, at Husband's direction, refused to permit Wife to continue using a vehicle that had been her primary means of transportation but was part of the transferred assets.

¶6 Wife filed a petition for dissolution on March 6, 2015. Tax 25 and Rewards Marketing went out of business a few weeks later.

¶7 On May 11, the superior court ordered that "neither party shall facilitate or participate, or in any way assist in the sale[, removal,] or transfer of any assets in which either of the parties claims a community interest, including property or assets of TAX 25, Inc., Cloyd Wiscombe, John `JP' Solmes and/or Rewards Marketing, LLC." Wife moved to join Cloyd; Tax 25; Solmes; and Rewards Marketing, as parties to the action under Rule 33 of the Arizona Rules of Family Law Procedure and to enjoin them from making any further sales or transfers of property to which Wife might have an interest. Husband filed a response to the motion, saying he had no objection to the joinder. Tax 25's assets (including some or all of the transferred assets) were sold at auction. The court granted Wife's motion shortly thereafter. Cloyd, acting on behalf of Tax 25, sold the marital residence — without Wife's consent — in August 2015.

¶8 After trial, the court entered a decree of dissolution, finding Tax 25 and all debts to it were Husband's sole and separate property and obligations, awarding spousal maintenance to Wife, ordering Appellants to pay Wife half the value of the transferred assets but finding the marital residence was not community property, and awarding attorney's fees to Wife against Husband, Cloyd, and Tax 25. The court also found Husband was in civil contempt of court but declined to impose sanctions.

¶9 Appellants moved for a new trial or, alternatively, an amendment of the decree. The court amended the decree to include additional findings of fact and vacated the award of attorney's fees against Tax 25, but the court otherwise affirmed the decree. Appellants separately appealed, and on Cloyd's unopposed motion, we consolidated the appeals.4

DISCUSSION

I. THE COURT PROPERLY FOUND THAT ONLY HUSBAND WAS LIABLE FOR THE DEBT TO TAX 25, AND THE COURT EQUITABLY DIVIDED THE REMAINDER OF THE ASSETS.

¶10 Appellants do not challenge the court's determination that Tax 25 was Husband's sole and separate property. But they contend that the court erroneously determined that the debts owed to Tax 25 and Cloyd were not community debts, but Husband's sole and separate obligations.

¶11 We review apportionment of community property for an abuse of discretion, Gutierrez v. Gutierrez, 193 Ariz. 343, 346, ¶ 5 (App. 1998), viewing "the evidence in the light most favorable to sustaining the trial court's findings," In re Marriage of Yuro, 192 Ariz. 568, 570, ¶ 3 (App. 1998). We will affirm unless the court's findings are "clearly erroneous or unsupported by the evidence." Id.

¶12 There is a presumption that property acquired during a marriage is community property, but that presumption may be overcome by a showing of clear and convincing evidence that the spouses intended at the time of acquisition that the property be the sole and separate property of one spouse. Lincoln Fire Ins. Co. of N.Y. v. Barnes, 53 Ariz. 264, 268 (1939). When either spouse incurs a debt, it is presumed to benefit the community and is therefore a community debt, even where one spouse's separate property was the security for the debt. Johnson v. Johnson, 131 Ariz. 38, 44-45 (1981); United Bank of Ariz. v. Allyn, 167 Ariz. 191, 198 (App. 1990).

¶13 Husband maintains that Tax 25 was his sole and separate property, that all the "loans" to the community were community debts, and that the transferred property went toward repayment of those debts.

¶14 Tax 25 was started when Tax Service loaned Husband $50,000, which Husband gave to Cloyd as a down payment on a $2 million loan to purchase Tax Service. The transfer document was signed by Appellants, and Tax 25's incorporation documents list Husband as the sole director and board member — there is no mention of Wife in any of the business's documents. Husband testified that all of the transferred assets were purchased with "loans" from Tax 25. But there is no mention of the loans (as income or otherwise) in Husband and Wife's joint tax returns. The "loans" were deposited into Husband and Wife's joint account. On May 18, Husband sent an email from Cloyd's email account, which he drafted with Cloyd, threatening Wife with legal action if she did not drop all claims of ownership to Tax 25, because Wife "never had any ownership interest in Tax 25, Inc[.], whether by marriage or not by marriage."

¶15 Wife testified that though she was aware that Husband took money out of Tax 25, she thought it was a bonus, not a loan, and that Husband considered Tax 25's money to be "his money." As far as she was aware, the transferred assets were paid for out of their joint account. She testified it was Husband's responsibility to make sure there was money in their joint account and that she was responsible only for writing checks to pay bills.

¶16 Apart from a list of "advances and repayments" in Tax 25's records, which showed a balance owed to Tax 25 of over $139,000 on February 19, 2015 ("Tax 25 debt"), there is no evidence of the loans, and no documentation to suggest that Tax 25 retained a security interest in the transferred assets (or any community asset).

¶17 Husband challenges the credibility of Wife's testimony, but we do not second-guess the court's weighing of evidence or credibility determinations. Lee Dev. Co. v. Papp, 166 Ariz. 471, 475-76 (App. 1990). Husband also contends that the Tax 25 debt is a community debt, because the community benefited from the loans. Even so, the court did not abuse its discretion by finding the debts were Husband's sole and separate obligations in these circumstances.

¶18 Even assuming the Tax 25 debt was a community debt, equity supports the court's order that Husband be solely responsible to repay it. Community debts and property must be divided equitably. A.R.S. § 25-318(A). Tax 25 was not a third-party creditor. See Cmty. Guardian Bank v. Hamlin, 182 Ariz. 627, 631 (App. 1995) (holding that a dissolution decree applies only to former spouses' obligations to each other, and not to third-party creditors). It was a business over which Husband had complete, unrestricted control. He cannot use that control and his authority to bind the community, see A.R.S. § 25-215(D), to reduce Wife's share of the community property in a dissolution, see Lee v. Lee, 133 Ariz. 118, 121 (App. 1982) (noting that community property must be divided substantially equally). As we explain below, Husband continued to receive the benefit of the transferred assets even after they were sold to Cloyd. Indeed, the May 18, 2015 email shows that the transfer was a sham, and Husband retained effective control of Tax 25 despite his insistence that he, Tax 25, and Cloyd were different entities operating independently. Had the court allocated any portion of the Tax 25 debt to Wife, it would have given a windfall to Husband and committed reversible error.

¶19 Husband next contends that the court abused its discretion by "failing to equitably divide the remaining community property," and that he is owed an equalization payment from Wife or a portion of the assets in her possession. The court found that equal division was equitable under the circumstances, and the court awarded Husband and Wife whatever property was in their respective possession. Husband contends that the court did not evenly divide the martial assets, because, according to his testimony, Wife took possession of 95% of the marital property, including the community's vehicle.

¶20 Husband's argument is an attack on the court's determination of his credibility. During the testimony on which he relies, his attorney offered "a laundry list of property." But the court rejected the exhibits for lack of disclosure, noting that in the nearly eleven months the case had been pending, it was not disclosed or even mentioned until trial. The court could properly disregard Husband's testimony, as it was contrary to the voluminous record of property transfers in this case. In any event, the court found that the allocation of real and personal property could not be equalized to any greater degree than was specifically stated in the decree. The court did not abuse its discretion.

II. THE COURT PROPERLY ENTERED A JUDGMENT AGAINST CLOYD BASED ON HUSBAND'S FRAUDULENT TRANSFER OF THE COMMUNITY PROPERTY TO HIM.

¶21 Cloyd challenges the judgment against him, arguing that as a third-party creditor to Husband, the court has no authority to direct him to return the transferred assets. First, Cloyd was not a third-party creditor over which the court had no jurisdiction to enter a judgment. See Lee, 133 Ariz. at 124 (holding that the court exceeded its subject matter jurisdiction by ordering the repayment of a third-party debt in a dissolution decree when the couple's creditors were not parties to the dissolution). He was a party to the dissolution proceedings. The court therefore had jurisdiction to enter a judgment against him. Second, the court did not order the return of the community assets (which would have been impossible after Appellants auctioned many of the assets soon after receiving the petition for dissolution and a court order prohibiting their sale), but rather entered a judgment of $58,695.60 against Appellants, an amount equal to one-half of the lowest possible value of the transferred assets.

¶22 Cloyd next argues that the judgment against him is invalid, because the court found Tax 25 was Cloyd's alter ego, a theory not mentioned in the complaint or argued at trial. Though Cloyd is correct that no alter ego theory was ever pled or argued, there is adequate evidence to sustain the judgment on Wife's fraudulent transfer theory, which was pled and argued but not expressly ruled on in the decree.5

¶23 A.R.S. § 44-1004 provides:

A. A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation under any of the following: 1. With actual intent to hinder, delay or defraud any creditor of the debtor. . . . . B. In determining actual intent . . . consideration may be given, among other factors, to whether: 1. The transfer or obligation was to an insider. 2. The debtor retained possession or control of the property transferred after the transfer. . . . . 4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. 5. The transfer was of substantially all of the debtor's assets.

¶24 Because the transferred assets were community assets, Wife was a creditor for purposes of § 44-1004. And there is evidence of the statutory indicia of intent to defraud. Cloyd, a family member, was an insider. See A.R.S. § 44-1004(B)(1); Gerow v. Covill, 192 Ariz. 9, 17, ¶ 36 (App. 1998). Husband retained possession and control of the property after the transfer. See § 44-1004(B)(2). Cloyd, at Husband's direction, denied Wife the use of the vehicle she had been using. Husband continued to receive financial information on Tax 25, continued to draw a salary from it, and was permitted to remain in the Tax 25-owned marital residence for several months with the transferred assets, rent free. Husband sent an email from Cloyd's email, over Cloyd's electronic signature (that included Cloyd's title as CEO of Tax 25), threatening legal action if Wife did not drop her claims of ownership to Tax 25.

¶25 Husband decided to transfer the property the day after overhearing Wife discuss divorce. See § 44-1004(B)(4). Most, if not all of the contents of the marital residence, were transferred to Tax 25 the day Cloyd bought it, and the assets in question were listed in detail in the contract. See § 44-1004(B)(5).

¶26 In these circumstances, equity supported a judgment for the value of Wife's interest in the transferred property against Cloyd for fraudulent transfer. See A.R.S. § 44-1007(A)(4)(c) ("[A] creditor . . . may obtain[,] . . . [s]ubject to applicable principles of equity and in accordance with applicable rules of civil procedure[,] . . . any other relief the circumstances may require.").

III. THE COURT DID NOT ABUSE ITS DISCRETION IN THE AWARD OF SPOUSAL MAINTENANCE.

¶27 We review an award of spousal maintenance for abuse of discretion. Cullum v. Cullum, 215 Ariz. 352, 354, ¶ 9 (App. 2007). Awards of spousal maintenance are governed by statute. See A.R.S. § 25-319. If a court finds that spousal maintenance is warranted under § 25-319(A), it must determine the amount and duration based on thirteen statutory factors. § 25-319(B). The court found Wife was entitled to spousal maintenance because (1) there was a marriage of long duration, and (2) Wife lacks sufficient property to provide for her reasonable needs. See § 25-319(A)(2), (4). The court made detailed factual findings on all of the factors and awarded Wife $100 per month in spousal maintenance.

¶28 Husband challenges only the finding that he can work and that his earning potential is $80,000 per year, because the court failed to give sufficient weight to the evidence that he has "terminal liver disease" and is unable to work. Husband earned approximately $90,000 per year when he owned Tax 25 (not including "loans" from the company), and he earned between $30,000 and $70,000 per year as an engineer in his earlier career. Husband was diagnosed with cirrhosis in August 2014. His discharge instructions prescribed medications; dieting; and "[a]ctivity, as tolerated." Husband testified that he has been unable to find employment and that he is not capable of "a lot of up and down . . . [or] traveling around town." At one point during the dissolution proceedings, he was living in Williams, Arizona, where he was "assisting another fellow who was building some vacation rental properties" by "hold[ing] the measuring tape" and handing him hammers and nails. But he maintained that this did not require standing for long periods of time, as "a clerk would be required to." He was "asked to leave" the place in Williams and moved to Mesa, Arizona, to live with a friend. Wife testified that Husband functioned well while he was on medication. The court concluded that Husband's "activities do not appear to be nearly as limited as portrayed by him." We discern no abuse of discretion. See Lee Dev. Co., 166 Ariz. at 475-76.

IV. THE COURT DID NOT ABUSE ITS DISCRETION IN AWARDING ATTORNEY'S FEES AGAINST APPELLANTS.

¶29 The court may award attorney's fees based on the financial resources of the parties and the reasonableness of their positions. A.R.S. § 25-324(A). We will not disturb an award absent an abuse of discretion. Mangan v. Mangan, 227 Ariz. 346, 352, ¶ 26 (App. 2011). The court found that there was a "substantial disparity of financial resources," that Husband "is able to borrow seemingly endless amounts of cash from [Cloyd] [that Cloyd] never expects to see . . . returned,"6 and that Appellant's "legal representation[s] . . . are inseparably entwined" as evidenced by "a long and awkward pause [when] [Husband] was not able to pick out which lawyer was actually representing him[,] . . . [a] result [of] [Cloyd's] funding of both lawyers."

¶30 Conversely, the court found Wife had no such resources to draw upon and relied on loans from relatives who expected to be repaid.

¶31 The court concluded that Appellants acted unreasonably in their handling of the transferred assets and that "[w]ithout representation, Wife would not have prevailed on her claims to the community property at trial." There is also evidence in the record that the Appellants refused to settle or to authorize their attorneys to settle the matter.

¶32 Husband concedes that if the Tax 25 debt was his sole and separate obligation, as we already held it was, see supra ¶¶ 14-20, then the court correctly found he acted unreasonably. But he contends that the court ignored evidence that he was "living for months at the mercy of friends or family" with no income and that the court did not consider the unreasonableness of Wife's positions. But the court found that his alleged inability to work is not as grave as he contends.

¶33 And even if both parties were equally situated economically, Appellant's unreasonable positions alone are grounds for an award of attorney's fees. Mangan, 227 Ariz. at 351-53, ¶¶ 25-28 (noting that a court must consider the parties' financial resources and the reasonableness of the parties' positions but finding no abuse of discretion when the court awarded attorney's fees to one party for taking unreasonable positions when the opposing party had greater resources).

¶34 Husband argues Wife's positions were unreasonable because she "insist[ed] that the marital home was community property despite clear evidence that it was owned by Tax 25, Inc.[,] sought half of all business bank accounts during the litigation and took the position that it was her right to spend money loaned from Tax 25, Inc. but that she was not responsible for paying the loans back."

¶35 As to the marital residence, the court did not abuse its discretion in finding that Wife had no ownership interest in the property, but neither would it have abused its discretion had it reached the opposite conclusion. "Property takes its character as separate or community at the time it is acquired and retains this character. . . ." Honnas v. Honnas, 133 Ariz. 39, 40 (1982). And property acquired during the marriage is presumptively community property. Lincoln Fire, 53 Ariz. at 268.

¶36 The marital residence was purchased using Tax 25's funds on July 6, 2012, and it was titled to Husband and Wife as joint tenants. In October 2013, Husband and Wife conveyed the marital residence to Tax 25 so that Tax 25 could borrow money against it. Wife testified that while she knew the house was purchased with Tax 25's money, Husband never differentiated between Tax 25's money and his money. Husband testified that he purchased the house using Tax 25's money to avoid a personal mortgage obligation, provide collateral for loans to Tax 25, realize a growth in value of the house, and provide a residence for the family. When Husband was asked why he and Wife were named joint tenants when the house was first purchased, he responded, "That's a good question. I can't answer that."

¶37 The house sold in August 2015 for $200,000 more than the outstanding loans secured by it, all of which went to Cloyd. Between March 6, 2015 (when Wife petitioned for dissolution), and August 2015 (when the house was sold — in violation of the court's order), Cloyd permitted Husband to reside there, rent free.7

¶38 As to the business's accounts, Husband's systematic use of business funds for community expenses creates a reasonable inference that the money in those accounts was actually a community asset. Indeed, his treatment of the marital residence as both a business asset and the community's home suggests that the distinction between Tax 25's assets and the community's assets was illusory, as were many of the intra-family transactions in this case. Though we characterize the payments above Husband's salary as "loans" or "debt" for purposes of this appeal (in keeping with the requirement that we view the facts in the light most favorable to sustaining the court's order), on this record the court would not have abused its discretion by finding that the "loans" were "transfers" from one community account to another.

¶39 The court properly awarded Wife attorney's fees.

CONCLUSION

¶40 For the foregoing reasons, we affirm the decree as modified upon reconsideration.

FootNotes


1. The Honorable Patricia A. Orozco, Retired Judge of the Court of Appeals, Division One, has been authorized to sit in this matter pursuant to Article VI, Section 3 of the Arizona Constitution.
2. Shortly after Wife consulted a lawyer about dissolution, Husband also transferred 85% of the balance in the joint checking account to Cloyd.
3. Solmes and Husband both testified that, despite the absence of such language in the contract, they intended that the debt be repaid only if Rewards Marketing became profitable. Appellants both stated that they had no intention of trying to recover the debt from Solmes.
4. Wife did not file an answering brief and is not represented by counsel on appeal.
5. We will affirm the court's ruling if any reasonable evidence supports its decision. See Johnson, 131 Ariz. at 44.
6. Cloyd does not contest the award of attorney's fees against him. The court found he acted unreasonably in facilitating Husband's positions in transferring community assets to Tax 25.
7. Though equity dictates that Wife is entitled to half the value of the transferred assets, the same is not true of the marital residence. The title transfer to Tax 25 evidences the parties' intent that the house be owned by Tax 25, Husband's sole and separate property.

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