Court Opinion

ID: 4512166
Source: CourtListenerOpinion
Date Created: 2020-03-03 16:02:08.929229+00
Date Added: 2024-06-11T08:48:42.499216
License: Public Domain

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  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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 Marriage of:

   CHRISTINE LEAH MENGHINI, Petitioner/Appellee/Cross-Appellant,

                                         v.

  PETER ANTHONY MENGHINI, Respondent/Appellant/Cross-Appellee.

                            No. 1 CA-CV 19-0057 FC
                              FILED 3-3-2020

            Appeal from the Superior Court in Maricopa County
                            No. FC2016-091275
                 The Honorable Laura M. Reckart, Judge

   VACATED IN PART AND REMANDED WITH INSTRUCTIONS

                                    COUNSEL

Stewart Law Group, Phoenix
By Brian G. Winter
Counsel for Petitioner/Appellee/Cross-Appellant

The Wilkins Law Firm, PLLC, Phoenix
By Amy M. Wilkins, Laura C. Brosh (argued), and Adam P. Boyd
Counsel for Respondent/Appellant/Cross-Appellee
                       MENGHINI v. MENGHINI
                         Decision of the Court

                      MEMORANDUM DECISION

Presiding Judge Paul J. McMurdie delivered the decision of the Court, in
which Judge Jennifer B. Campbell and Vice Chief Judge Kent E. Cattani
joined.

M c M U R D I E, Judge:

¶1           Peter Menghini (“Husband”) appeals and Christine Menghini
(“Wife”) cross-appeals from the property division and other orders entered
in the decree dissolving their marriage. Between them, the parties raise
eight claims of error in the court’s decree. For the following reasons, we
affirm some of the orders within the decree, vacate others, and remand for
proceedings consistent with this decision.

            FACTS AND PROCEDURAL BACKGROUND 1

¶2            Husband and Wife married in May 2004, in Colorado. Both
Husband and Wife came to the marriage with substantial real estate assets,
and they acquired several properties during the marriage. In addition,
during the marriage, Wife’s family, who is also involved in real estate,
gifted the couple membership interests in various family-owned limited
liability companies (the “Family LLCs”) engaged in real estate.

¶3            In December 2018, following a dissolution trial in which Wife,
Husband, and their respective experts testified concerning the character of
and potential community interest in the parties’ assets, the superior court
issued a decree dissolving the marriage and allocating the parties’
community and separate property and debts. The parties appealed, and we
have jurisdiction under Arizona Revised Statutes (“A.R.S.”)
section 12-2101(A)(1) and Arizona Rule of Family Law Procedure 78(c)
(2019).

1       We view the facts in the light most favorable to sustaining the
superior court’s findings and orders. Alvarado v. Thomson, 240 Ariz. 12, 13,
¶ 1, n.1 (App. 2016).

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                               DISCUSSION

¶4            Husband argues the superior court erred by: (1) inequitably
dividing a piece of community property known as the “Waltann Property”;
(2) miscalculating the community lien that should be attributed to two
pieces of Wife’s separate property—a parcel of land located in Buckeye
known as the “Martha Jane Property” and a home in Colorado known as
the “Rudi Lane Property”; (3) finding that Wife’s membership interest in
Corner MCR, LLC (“Corner MCR”) and, by extension, a solar lease, was
Wife’s separate property and finding Husband was not entitled to an
equitable lien for community labor related to Corner MCR or the solar lease;
(4) ordering Husband to reimburse Wife’s parents for an alleged debt
incurred after the service of the petition for dissolution; (5) awarding Wife
an equalization payment for funds removed from a community account by
Husband; (6) failing to address the disposition of the community’s
membership interests in the Family LLCs; and (7) refusing to award
Husband attorney’s fees and costs based on the parties’ respective financial
resources. In her cross-appeal, Wife asserts the court erred by refusing to
award her attorney’s fees and costs because, in her view, the court applied
the wrong legal standard under A.R.S. § 25-324(A). We address each
argument in turn.

A.     The Superior Court Abused Its Discretion by Inequitably
       Dividing the Waltann Property.

¶5            Husband argues the superior court incorrectly calculated the
equity existing in the Waltann Property, a home Husband and Wife
purchased during the marriage, and contends this miscalculation resulted
in an inequitable division of the community. In response, Wife argues that
the court was not required to divide all community property equally, just
equitably, and points to another instance where the court divided a
property unequally in favor of Husband.

¶6              We review the superior court’s division of community
property under A.R.S. § 25-318 for an abuse of discretion. Valento v. Valento,
225 Ariz. 477, 481, ¶ 11 (App. 2010). “The valuation of assets is a factual
determination that must be based on the facts and circumstances of each
case.” Kelsey v. Kelsey, 186 Ariz. 49, 51 (App. 1996). “A court abuses its
discretion if . . . the record fails to provide substantial evidence to support
the trial court’s finding.” Walsh v. Walsh, 230 Ariz. 486, 490, ¶ 9 (App. 2012)
(quoting Flying Diamond Airpark, L.L.C. v. Meienberg, 215 Ariz. 44, 50, ¶ 27
(App. 2007)).

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                        MENGHINI v. MENGHINI
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¶7            In their respective pretrial statements and during the trial,
both parties agreed that Husband should be awarded the Waltann
Property, so the only issue before the court was the amount Husband owed
to Wife for her share of the equity in the property. The parties also agreed
that the principal balance of the mortgage on the Waltann Property was
approximately $220,000, but disputed the market value of the home.
Husband estimated the market value of the house to be $425,000, while
Wife estimated it to be $475,000. In the portion of the decree addressing the
Waltann Property, the court calculated Wife’s share of the equity in the
property by subtracting the principal balance of the mortgage ($220,000)
from Wife’s estimate of the market value of the home ($475,000) and then
dividing the resulting figure in half (($475,000 - $220,000)/2). Using this
formula, the court accurately determined Wife’s share of the equity in that
scenario would be $127,500. The court then reversed course, however, and
resolved the parties’ dispute over the market value of the Waltann Property
by finding the market value of the property was the average of the experts’
offered estimates, $450,000. Without any further explanation, the court then
improperly applied the formula outlined by failing to subtract the principal
balance of the mortgage from the market value of the property. Instead, the
court divided the market value of the home in half ($450,000/2) and
concluded that Wife’s share of the equity was $225,000.

¶8             Neither party disputes the court’s findings regarding the
market value of the Waltann Property and principal balance of the
mortgage attached to the home. But assuming the court’s goal was to divide
the Waltann Property’s equity equally, we agree with Husband that the
court inadvertently miscalculated the equalization payment owed to Wife.
The $225,000 figure arrived at by the superior court is inconsistent with the
method the court appears to have intended to apply. Under that formula,
Wife’s share of the equity should have been $115,000
(($450,000 - $220,000)/2 = $115,000). The court’s failure to deduct the
principal balance of the mortgage on the Waltann Property before
calculating Wife’s share of the equity is also inconsistent with the generally
accepted understanding of the term “equity,” which means “the difference
between the value of the property and all encumbrances on it.” Equity,
Black’s Law Dictionary (11th ed. 2019). Indeed, as Husband correctly points
out, the result of this apparent mathematical error was that Husband was
ordered to pay an amount to Wife equal to nearly 98% of the existing equity
in the Waltann Property.

¶9             Wife is correct that the court’s division of community
property need not be entirely equal, and the court appears to have divided
at least one other piece of property in a manner that was both not equal and

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in Husband’s benefit. See A.R.S. § 25-318 (“[The court] shall also divide the
community, joint tenancy and other property held in common equitably,
though not necessarily in kind . . . .” (emphasis added)). But as our supreme
court explained in Toth v. Toth, 190 Ariz. 218, 221 (1997), the court must have
a sound reason to deviate from a substantially equal division of community
property. We can find nothing in the court’s order or in the record to
support deviating from a substantially equal division of community
property concerning the Waltann Property, especially when the court
divided nearly all other community assets equally. And when we total the
disposition of all valued community assets in the decree, including the
property referenced by Wife, the court’s division of the Waltann Property
still resulted in a significant windfall in Wife’s favor. Thus, the court abused
its discretion by inequitably dividing the equity existing within the Waltann
Property. We vacate the portion of the decree dividing the Waltann
Property and remand for further proceedings.

B.     The Superior Court’s Calculation of the Equitable Liens on the
       Martha Jane and Rudi Lane Properties Was Not Erroneous.

¶10            Husband contends the superior court erred in its calculation
of the equitable liens attributable to the Martha Jane Property and the Rudi
Lane Property. “When the community contributes capital to separate
property, it acquires an equitable lien against that property.” Valento, 225
Ariz. at 481, ¶ 12. Because the existence and value of an equitable lien raises
mixed questions of fact and law, our review is de novo. Id. at ¶ 11; see also In
re MH 2008-001752, 222 Ariz. 567, 569, ¶ 7, n.3 (App. 2009) (“When an
appeal presents a mixed question of law and fact, we defer to the superior
court’s factual findings but review de novo its legal conclusions.”). This
means that “[w]e will uphold the court’s factual findings unless clearly
erroneous or unsupported by any credible evidence,” but will “draw our
own legal conclusions from the facts found or implied by the [superior]
court.” Valento, 225 Ariz. at 481, ¶ 11. We address the court’s calculation of
each equitable lien in turn.

          1. The Superior Court Correctly Calculated the Equitable Lien
             on the Martha Jane Property.

¶11            The superior court found that an equitable lien totaling
$214—the amount calculated by Wife and her expert— was attributable to
the Martha Jane Property and ordered Wife to pay Husband $107 for his
share of the lien. Husband contends this figure is erroneous for two reasons.
First, Husband argues that, at a minimum, the equitable lien should have
been increased by $35,000 to account for entitlement fees paid on the

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                        MENGHINI v. MENGHINI
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property because the funds were paid from a Charles Schwab bank account
the court later determined was a community account. Second, Husband
contends the court erred by disregarding other contributions allegedly
made by the community for the benefit of the Martha Jane Property during
the marriage.

¶12            At the outset, we reject Husband’s assertion that the
community nature of the Charles Schwab bank account from which the
entitlement fees were paid is dispositive. During the trial, Wife and her
expert testified that the entitlement fees were paid from separate funds
Wife received from the sale of separate property before the marriage and
then deposited into the bank account. Separate property does not lose its
separate character, even when commingled with community funds, so long
as “the separate property can still be identified.” In re Marriage of Cupp, 152
Ariz. 161, 164 (App. 1986). Thus, the dispositive question is not whether the
bank account at issue was community or separate in nature, but whether
the separate funds Wife deposited into the account could still be identified
when the entitlement fees were paid. If credible evidence exists from which
the court could have concluded the separate character of the funds was not
lost, we will not substitute our judgment for that of the superior court. Id.

¶13            Here, the parties presented conflicting evidence regarding the
source of the funds used to pay the $35,000 in entitlement fees for the
Martha Jane Property. Both parties were limited because complete bank
records from the relevant period were not available. Wife and her expert
testified that the fees were paid from the separate funds deposited in the
Charles Schwab bank account, and provided bank records from the
relevant period that showed that: (1) at the time the funds from the sale of
Wife’s separate property were deposited, the account was still only in
Wife’s name, and was converted to a joint account at a later date; (2) the
funds were utilized over the next two years for various expenses; and
(3) $35,000 was wired out of the account on March 22, 2006.

¶14            Husband and his expert testified that the entitlement fees
were paid from other community accounts and provided a ledger entry for
a $35,000 check to “Martha Jane, LLC” from a different bank account. But
the date listed on the check, March 24, 2006, was a mere two days after the
wire transfer from the Charles Schwab account, and so the court could have
reasonably concluded from this evidence that the check and wire transfer
involved the same funds.

¶15          By concluding the equitable lien attributable to the Martha
Jane Property was only $214, the court implicitly resolved the conflicting

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evidence concerning the source of the payments in Wife’s favor, and we
defer to that finding. See Gutierrez v. Gutierrez, 193 Ariz. 343, 347, ¶ 13 (App.
1998) (Court of Appeals defers to the superior court determinations
concerning the weight to give conflicting evidence). Based on the evidence,
the court did not err by finding the community was not entitled to a lien for
the $35,000 in entitlement fees paid on the Martha Jane Property.

¶16            Turning to Husband’s second argument, it is little more than
an invitation for this court to reevaluate the credibility of the testimony and
reweigh the conflicting evidence presented by the parties during the trial,
something we will not do. See Lehn v. Al-Thanayyan, 246 Ariz. 277, 284, ¶ 20
(App. 2019) (“On appeal, we do not reweigh the evidence but defer to the
family court’s determinations of witness credibility and the weight given to
conflicting evidence.”). Relying on the check registers submitted by
Husband and his statements, Husband’s expert concluded that the
community was also entitled to an equitable lien totaling $18,521 for other
expenses associated with the Martha Jane Property in addition to the
entitlement fees. Wife’s expert countered this assessment by: (1) contesting
the existence of one of the accounts listed in the check registers and
(2) collecting statements from Wife with alternative explanations for many
of the checks recorded in the check registers. Moreover, during
cross-examination, Husband’s expert admitted that because no bank
statements from the relevant period were available, he could not verify
whether the checks recorded in the check registers had been cashed or on
what date they were cashed. Under these circumstances, the superior court
could reasonably conclude that the evidence was insufficient to establish
that the community had expended the funds claimed by Husband.

¶17           Accordingly, the superior court did not err by finding the
equitable lien attributable to the Martha Jane Property was the amount
claimed by Wife, $214.

           2. The Superior Court Correctly Calculated the Equitable Lien
              on the Rudi Lane Property.

¶18           The superior court found that an equitable lien totaling
$35,250—a similar amount to that calculated by Wife’s expert—was
attributable to the Rudi Lane Property and ordered Wife to pay Husband
$17,625 for his share of the lien. Husband argues the court’s calculation of
this lien was erroneous for two reasons.

¶19           First, Husband argues the court erred by failing to account for
the alleged appreciation of the Rudi Lane Property during the marriage as

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                        MENGHINI v. MENGHINI
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required by this court’s decisions in Drahos v. Rens, 149 Ariz. 248 (App.
1985), and Barnett v. Jedynak, 219 Ariz. 550 (App. 2009). The community is
entitled to an equitable lien not only for its contributions to separate
property but also for a share of the amount the separate property
appreciated during the marriage according to a set formula. Drahos, 149
Ariz. at 250; Barnett, 219 Ariz. at 555, ¶ 21. But Husband’s argument
assumes the Rudi Lane Property increased in value during the marriage.
When property depreciates during the marriage, but positive equity
remains, a different formula applies. In that situation, the court must
“recognize a community lien in an amount equal to the reduction in
principal indebtedness attributable to the community contribution.”
Valento, 225 Ariz. at 482, ¶ 15.

¶20           Here, the parties again presented conflicting evidence on
whether the property had increased or decreased in value during the
marriage. The parties agreed that the approximate market value of the
home on the date of the marriage was $250,000. Wife’s expert concluded the
value of the Rudi Lane Property at the end of the marriage was $162,500,
which was the middle figure of a value range provided by a Colorado
realtor who inspected the home in early 2016. The realtor opined that the
decrease in value was caused by severe damage to the home during the
marriage that required significant repairs. Husband’s expert, on the other
hand, calculated the value of the Rudi Lane Property at $350,000 and based
his assessment on comparisons with similar properties in the area.
Although the superior court did not say so explicitly, the portion of the
decree addressing the Rudi Lane Property resolved the conflicting evidence
in favor of Wife, and we defer to that finding. Gutierrez, 193 Ariz. at 347,
¶ 13. Husband was, therefore, entitled to a lien for reimbursement of the
community’s contributions to the Rudi Lane Property during the marriage
consistent with Valento, and the court committed no error by declining to
apply the Drahos/Barnett formula.

¶21           Next, Husband contends the court erred by disregarding
other community contributions Husband and his expert claimed were
made to the Rudi Lane Property, including contributions for mortgage
payments, property management services, and repairs. Wife’s expert
concluded the equitable lien for the Rudi Lane Property totaled $35,520. She
based this total upon her calculation of the average annual maintenance for
the property, a figure she arrived at by examining eight years of the parties’
tax records. Wife’s expert also conducted a tracing analysis of the parties’
bank accounts from 2012 to 2016 to determine whether rental payments
made by a tenant who lived in the Rudi Lane Property from 2004 to 2016
adequately covered the monthly mortgage payments owed for the

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                        MENGHINI v. MENGHINI
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property. Although Wife’s expert could not examine the parties’ accounts
before 2012 due to the unavailability of bank statements, she found that for
the period she could examine, the rental payments made by the tenant
adequately covered the mortgage. As a result, Wife’s expert concluded the
community was not entitled to a lien for contributions to the principal
balance of the mortgage on the Rudi Lane Property.

¶22            Husband’s expert found that the equitable lien attached to the
Rudi Lane Property was $146,360. He arrived at this figure by adding the
calculated value of three separate forms of contribution to the Rudi Lane
Property alleged by Husband: (1) $57,860 for repairs, maintenance, and
travel to the property; (2) $27,720 for property management services, which
he calculated by assigning a fair market value for such services over 11
years; and (3) $60,780 for mortgage payments Husband claimed he
consistently made from 2004 through 2012 because the Rudi Lane Property
tenant underpaid the rent. On cross-examination, however, Husband’s
expert admitted that he “took [Husband’s] word for it” concerning
Husband’s claim that the Rudi Lane Property tenant underpaid the rent and
that there was no proof that Husband had ever received payment for
property management-related services regarding the Rudi Lane Property.

¶23           On this record, the court was within its discretion to disregard
Husband’s expert, who relied heavily on Husband’s word, in favor of the
analysis provided by Wife’s expert. Wife’s expert’s conclusions were
adequately supported by her testimony and the materials contained within
her report. To the extent the experts’ testimony conflicted, we defer to the
superior court’s assessment of their credibility and the weight it gave to the
conflicting evidence. Gutierrez, 193 Ariz. at 347, ¶ 13.

¶24            The superior court’s calculation of the community lien on the
Rudi Lane Property was not erroneous. The court, however, appears to
have made a minor clerical error in its ruling by finding the community lien
on the Rudi Lane Property was $35,250 instead of $35,520. Wife’s expert
testified that the lien was equal to $35,520, and her method for calculating
the figure confirms that the number is correct. Thus, although we affirm the
court’s factual findings concerning the value of the equitable lien on the
Rudi Lane Property, we direct the superior court to award Husband an
additional $135 on remand to account for his share of the difference
between the correct amount of the community lien and the amount
awarded in the decree.

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                          MENGHINI v. MENGHINI
                            Decision of the Court

C.     The Superior Court Committed No Error Concerning its
       Disposition of Corner MCR and the Solar Lease Rental Income.

¶25           The parties disputed whether a community interest existed in
Corner MCR, a limited liability company in which Wife owned a one-third
membership interest. Corner MCR received the rental income from a
30-year lease of real property owned by Corner MCR and leased to a solar
energy development and generation company. Wife moved for partial
summary judgment, arguing Corner MCR and, by extension, the rental
income from the solar lease, were her separate property. In his response,
Husband countered that because Corner MCR was formed during the
marriage using community labor, the company and any profits generated
from it were community property.

¶26           The undisputed facts in Wife’s motion and Husband’s
response established that in 1998, approximately six years before the
marriage, as a gift from their grandmother Wife and her two siblings each
received a one-third share of 200 acres of land located in Maricopa County
(the “Maricopa Property”). During the marriage, Wife’s one-third share of
the Maricopa Property remained in her name only, and Husband was never
given an interest or made a record owner of the property. In 2012, Wife and
her siblings formed Corner MCR, transferred their respective one-third
shares of the Maricopa Property to the company, and entered the solar lease
through Corner MCR. Wife’s siblings had little involvement in the process,
and although Husband and Wife agreed the efforts required to secure the
solar lease were considerable, they disputed the extent of each other’s
contributions.

¶27             Before the dissolution trial, after reviewing the parties’ filings,
the superior court issued an order granting partial summary judgment in
favor of Wife. In its ruling, the court found: “The record is undisputed that
[Wife] never transferred any title interest in the property to [Husband]
during the marriage. Therefore, the property is [Wife’s] sole and separate
property.” The court noted, however, that granting summary judgment in
Wife’s favor only decided the issue of Corner MCR’s and the Maricopa
Property’s character, and it did not “preclude [Husband] from arguing he
is entitled to an equitable interest in the property.” Husband filed a petition
for special action with this court challenging this order, but this court
declined to accept jurisdiction.

¶28         The parties presented extensive evidence, expert testimony,
and argument during the trial on the present-day value of the solar lease,
whether that value could include future rental income Wife was due to

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                        MENGHINI v. MENGHINI
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receive under the terms of the solar lease, and the parties’ respective
contributions to the formation of both Corner MCR and the solar lease.
Husband argued the community had an interest in the solar lease rental
income for the entire 30-year lease term because both Corner MCR and the
solar lease were formed during the marriage. Wife contended that no
authority supported Husband’s claim for rental income beyond the date of
service of the petition for dissolution, and that Husband had already been
adequately compensated by the rental income Wife deposited into the
parties’ joint accounts, which totaled over $150,000.

¶29           In the decree, the superior court found that the income from
the solar lease is Wife’s separate property and any community interest in
the revenue from the lease terminated on the date of service. The court also
found that Husband “did not prove the income generated from the lease
during the course of the marriage was expended on anything other than
community expenses.”

¶30          On appeal, Husband raises two arguments concerning the
court’s disposition of Corner MCR and the solar lease. First, Husband
argues the court mischaracterized Corner MCR as Wife’s separate property.
Second, Husband contends the court erred by not awarding him a
community lien for the community’s contributions to the formation of
Corner MCR and obtaining the solar lease.

          1. Corner MCR, and, by Extension, the Solar Lease, Are Wife’s
             Separate Property.

¶31            Husband, relying on an alleged distinction between real and
personal property, and the presumption that all property acquired during
the marriage is community property, asserts the character of Wife’s
membership interest in Corner MCR is separate from her separate property
interest in the Maricopa Property. Husband also contends that although
Wife contributed her separate property interest in the Maricopa Property
as capitalization for the formation of Corner MCR, that contribution is not
dispositive to the character of Corner MCR because Husband and Wife’s
community labor also contributed to its creation. We disagree.

¶32           The characterization of property as separate or community is
a question of law that we review de novo. Schickner v. Schickner, 237 Ariz.
194, 199, ¶ 22 (App. 2015). “A spouse’s real and personal property that is
owned by that spouse before marriage and that is acquired by that spouse
during the marriage by gift, devise or descent, and the increase, rents, issues
and profits of that property, is the separate property of that spouse.” A.R.S.

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§ 25-213(A). “Property takes its character as separate or community at the
time of acquisition and retains that character throughout the marriage.”
Schickner, 237 Ariz. at 199, ¶ 22 (quoting Bell-Kilbourn v. Bell-Kilbourn, 216
Ariz. 521, 523, ¶ 5 (App. 2007)). “Once property has been identified as
separate or community, it remains such as long as it can continue to be
segregated.” Nace v. Nace, 104 Ariz. 20, 22 (1968); see also Rowe v. Rowe, 154
Ariz. 616, 619 (App. 1987) (“An asset that is separate property before
marriage remains separate property after marriage until changed by
agreement or operation of law.”), superseded by statute on other grounds as
stated in Myrick v. Maloney, 235 Ariz. 491, 494, ¶ 8 (App. 2014). Thus,
“[p]roperty purchased during marriage with separate property remains
such.” Nace, 104 Ariz. at 23. Separate property can, however, be
“transmuted into community property by agreement, gift or
commingling.” Cupp, 152 Ariz. at 164.

¶33           Here, a straightforward application of the principles
surrounding the transmutation of separate property during the marriage
leads to the conclusion that Wife’s membership interest in Corner MCR is
her separate property. It is undisputed that Wife’s one-third interest in the
Maricopa Property was acquired before the marriage and was, therefore,
her separate property. It is also acknowledged that the sole purpose of the
formation of Corner MCR was for Wife and her siblings to combine their
separate interests in the Maricopa Property and enter the solar lease.
Incorporation of a separate business or asset during the marriage does not
transmute the character of the separate property to community property.
Hefner v. Hefner, 456 P.3d 20, 25, ¶ 13 (Ariz. App. 2019). The form Wife’s
separate property took, whether as a one-third interest in the Maricopa
Property or a one-third membership interest in Corner MCR, is immaterial
because Wife’s contribution of her separate property to Corner MCR
remains directly connected to the one-third membership interest she
ultimately received in the company. “To suggest otherwise elevates
semantics over substance.” Id.

¶34            Moreover, there is no evidence in the record that Wife
engaged in conduct during the marriage that could result in the
transmutation of that separate interest into a community one. See Cupp, 152
Ariz. at 164. The parties did not agree to convert the Maricopa Property or
Wife’s membership interest in Corner MCR into community property
during the marriage, and there is no evidence that Wife intended to gift her
interest in the company to the community. As for transmutation by
commingling, it is undisputed that the only asset related to Wife within
Corner MCR is her share of the Maricopa Property and the solar lease
attached to it. The separate identity of Wife’s one-third interest in the

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Maricopa Property remained intact. And although Husband may be correct
that substantial community labor was involved in Corner MCR’s formation,
those efforts do not alter the separate character but may merely entitle the
community to some share of the profits generated by the community’s
contributions. See Cockrill v. Cockrill, 124 Ariz. 50, 52 (1979) (“We emphasize,
however, that the separate property of the spouse remains separate. It is
merely the profits or the increase in value of that property during marriage
which may become community property as a result of the work effort of the
community.”). Accordingly, the court correctly found that Wife’s one-third
interest in Corner MCR and, by extension, her interest in the solar lease,
was her separate property.

          2. The Court Did Not Err by Finding the Solar Lease Income
             Was Wife’s Separate Property and the Community Had
             Been Compensated for the Services it Provided in Forming
             Corner MCR and Entering the Solar Lease.

¶35            Husband maintains the court erred by finding the community
had been adequately compensated for the community labor attributable to
the profits Wife received from Corner MCR and the solar lease during the
marriage. In Cockrill v. Cockrill, the court held that because profits generated
from separate property can be community property depending on whether
they result from the labor of a spouse or the inherent nature of the separate
property, the superior court must determine whether and to what extent
the profits generated from separate property during the marriage are a
product of each and to apportion them accordingly. 124 Ariz. at 52, 54.
“[T]he burden is upon the spouse who contends that the increase is also
separate property to prove that the increase is the result of the inherent
value of the property itself and is not the product of the work effort of the
community.” Id. at 52. The court also concluded the superior court had
broad discretion to select a method for apportionment that would “achieve
substantial justice between the parties.” Id. at 54. The decision outlined
three such approaches:

       In the case of real estate, the owner of the real property can be
       awarded its rental value, with the community being entitled
       to the balance of the income produced from the lands by the
       labor, skill and management of the parties. Another approach
       is to determine the reasonable value of the community's
       services and allocate that amount to the community, and treat
       the balance as separate property attributable to the inherent
       nature of the separate estate. Finally, the trial court may
       simply allocate to the separate property a reasonable rate of

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                           MENGHINI v. MENGHINI
                             Decision of the Court

       return on the original capital investment. Any increase above
       this amount is community property.

Id. (citations omitted).

¶36             Here, because Corner MCR and the solar lease were both
formed during the marriage, a community interest equal to the profits
resulting from the community labor utilized in their creation was
established. See Cockrill, 124 Ariz. at 52; see also Rueschenberg v. Rueschenberg,
219 Ariz. 249, 252–53, ¶¶ 12–14 (App. 2008). Under Cockrill, the superior
court was required to apportion the profits that resulted from the
community’s labor and those that were attributable to the inherent nature
of the separate property. 124 Ariz. at 54. The decree adopted an approach
analogous to the second method of apportionment contemplated by
Cockrill. By finding Husband had not proven the income generated from the
solar lease had been utilized “on anything other than community
expenses,” the court implicitly found that the community had already been
adequately compensated for the services it provided in the formation of
Corner MCR and obtaining the solar lease by the rental income Wife
supplied to the community. This finding is consistent with Cockrill’s
mandate to “achieve substantial justice between the parties.” Id.

¶37           From the formation of the lease in 2012 to the end of the
marriage in April 2016, Wife deposited rental income from the solar lease
exceeding $150,000 into the parties’ joint accounts. The largest estimate of
the community labor associated with the formation of Corner MCR and the
solar lease presented by Husband attributed 720 hours of community labor
to Wife. Under this estimate, the community received compensation for that
labor equal to over $192 per hour. Thus, the court did not abuse its
discretion by finding the community had already received funds equal to
“the reasonable value of the community’s services.” Cockrill, 124 Ariz. at 54.

¶38            As for the profits generated by the solar lease during the
marriage, we agree with the superior court’s conclusion they remained
Wife’s separate property. Wife met her burden of showing that the solar
lease rental income was the result of the “inherent value of the property
itself and [] not the product of the work effort of the community.” Cockrill,
124 Ariz. at 52. The evidence established that once the solar lease was
finalized, no further community efforts were required to receive the rental
income. Under the terms of the solar lease, the leasing company is
responsible for managing the solar power generation operation and for
paying all taxes associated with the operation of the facilities. Thus, the
profits Wife received from Corner MCR through the solar lease during the

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                         MENGHINI v. MENGHINI
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marriage stemmed, not from the community’s efforts, but the inherent
value of Wife’s separate property as quantified by the lease. Accordingly,
the court correctly apportioned the solar lease rental income “as separate
property attributable to the inherent nature of the separate estate.” Id. at 54.

D.     The Superior Court Did Not Have the Authority to Order Husband
       to Repay a Separate Debt to Wife’s Parents in a Dissolution
       Proceeding.

¶39            Husband argues the superior court lacked subject matter
jurisdiction to order him to pay Wife’s parents $4779 to reimburse them for
health-insurance coverage Wife’s parents allegedly provided after service
of the petition for dissolution. 2 We agree.

¶40           We review questions involving the court’s jurisdiction de
novo. In re Marriage of Thorn, 235 Ariz. 216, 220, ¶ 16 (App. 2014). “Despite
the application of equitable standards in a dissolution proceeding, it
remains a statutory action, and the trial court has only such jurisdiction as
is granted by statute.” Weaver v. Weaver, 131 Ariz. 586, 587 (1982). “Title 25
defines the boundaries of a dissolution court’s jurisdiction, and the court
may not exceed its jurisdiction even when exercising its equitable powers.”
Id. “The primary focus for a determination of the trial court’s authority is
an examination of the relevant statute.” Martin v. Martin, 156 Ariz. 452, 456
(1988).

¶41             Under the relevant statute, A.R.S. § 25-318(A), the superior
court is authorized to “assign each spouse’s sole and separate property to
such spouse” and to “divide the community, joint tenancy and other
property held in common equitably, though not necessarily in kind.” This
authority includes the power to allocate responsibility for the payment of
community debts to a spouse. Lee v. Lee, 133 Ariz. 118, 123 (App. 1982).
Pursuant to A.R.S. § 25-318(E)(2), the court may also “impress a lien on the
separate property of either party . . . in order to secure the payment
of . . . . [c]ommunity debts that the court has ordered to be paid by the
parties.” However, as explained in Lee, “[t]he allocation of community
liabilities determines the rights and obligations of parties before the court

2      Wife asserts Husband waived this argument by failing to object to
her request for reimbursement at trial. However, “challenges to subject
matter jurisdiction may be raised at any time, including for the first time on
appeal.” Health for Life Brands, Inc. v. Powly, 203 Ariz. 536, 538, ¶ 12 (App.
2002).

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                         MENGHINI v. MENGHINI
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only with respect to each other.” 133 Ariz. at 124. In other words, the statute
only authorizes the superior court to allocate responsibility for community
debts, and “may not effectively validate and discharge a contested
debt . . . by ordering one party to pay the debt directly under pain of
contempt.” Id.

¶42            In this case, Husband is correct that Lee controls if the alleged
debt was a community debt. The superior court does not have the power in
a dissolution proceeding to issue a judgment for payment of a community
debt allegedly owed to a third party. 133 Ariz. at 123–24. But the court’s
error here goes beyond a mere overextension of its power to allocate
community debts because this alleged debt is a separate one. Wife claimed
that her parents had paid for the parties’ health-insurance coverage
beginning in 2012 to support her decision to leave her employment. But in
her pretrial statement and during the trial, Wife only sought reimbursement
on behalf of her parents for payments made for Husband’s portion of that
coverage after service of the petition for dissolution. All property, and by
extension, all debt, “that is acquired by a spouse after service of a petition
for dissolution of marriage [] is [] the separate property of that spouse if the
petition results in a decree of dissolution of marriage.” A.R.S. § 25-213(B).

¶43           The situation here is akin to the one contemplated by our
supreme court in Weaver v. Weaver. There, the court held the superior court
had no jurisdiction “to allow a money judgment for damage by one spouse
to the separate property of the other spouse in a dissolution proceeding.”
Weaver, 131 Ariz. at 587. In so holding, the court noted that the superior
court’s jurisdiction concerning separate property was limited only to
assigning each spouse their separate property and imposing a lien
according to A.R.S. § 25-318(E). Id. That remains true today. There was no
evidence of a contractual relationship between Wife’s parents and
Husband, and no basis from which to conclude that Husband had agreed
to reimburse parents for what appears to have been a gift. Thus, Wife had
no basis from which to assign a separate debt to Husband, and the superior
court did not have the authority to order Husband to pay a separate debt
allegedly owed to a third party. The portion of the decree ordering
Husband to pay Wife’s parents is void and must be vacated.

E.     The Superior Court Did Not Abuse its Discretion by Ordering
       Husband to Pay an Equalization Payment to Wife for Funds
       Removed from Community Bank Accounts.

¶44         At the trial, Wife testified that from November 2016 to
January 2018, Husband had withdrawn $44,196.79 in community funds

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                        MENGHINI v. MENGHINI
                          Decision of the Court

from two joint Charles Schwab bank accounts and placed them into a Wells
Fargo joint bank account that the parties had agreed would be Husband’s
account while the dissolution proceedings were pending. Wife also testified
that once she realized Husband was depleting funds from the Charles
Schwab accounts, she withdrew the remaining $12,989.30 and that she did
not know whether any money remained in the Wells Fargo account. Wife
requested that the court order Husband pay her a $15,603.74 equalization
payment to divide the total funds existing at the time of service in the
Charles Schwab accounts equally.

¶45           During his testimony, Husband admitted that he had
withdrawn and used around $40,000 from the community bank accounts,
but claimed: (1) his withdrawal equaled portions of Wife’s solar lease rental
income that they agreed he was entitled to while the dissolution
proceedings were pending; and (2) he used the funds for community
expenses “like [Wife’s] car payment and insurance payments and cable bills
and APS bills.” In the decree, the superior court found Husband had
transferred $44,196.79 in community funds to his separate Wells Fargo
account and that Husband owed Wife $15,603.74 as an “equalization share
of community funds he has already received.”

¶46           Husband      argues the       superior     court     erred by
mischaracterizing the joint Wells Fargo account as his separate account and
not crediting his assertion that all withdrawals and expenditures from the
funds taken out of the Charles Schwab accounts were for the benefit of the
community. Again, we review the superior court’s division of community
property for an abuse of discretion. Valento, 225 Ariz. at 481, ¶ 11.

¶47            We see no error in the court’s conclusions here. At the outset,
Husband’s assertion that the court’s characterization of the Wells Fargo
account was incorrect has no bearing on this issue. The operative question
is not whether Husband deposited the community funds in a community
account or separate account; it is whether he showed that he used the
withdrawn funds to pay for community expenses or that Wife agreed to the
withdrawals. Gutierrez, 193 Ariz. at 346, ¶ 7 (“The spouse making the
withdrawals should bear the burden of showing that the money was spent
to benefit the community.”). If Husband did, his claim that the court lacked
reasonable evidence to find the equalization payment equitable might have
merit; if he did not, the court was well within its discretion to order he pay
Wife to equalize the share of the Charles Schwab accounts.

¶48         However, the evidence within the record Husband points to
in his brief—text messages between Wife and Husband and bank

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                        MENGHINI v. MENGHINI
                          Decision of the Court

statements concerning the Wells Fargo account—at best only partially
support his testimony. The text messages, which date back to a few months
before Husband began removing money from the Charles Schwab
accounts, show that Wife “presume[d]” the parties would split the solar
lease rental income until the divorce was finalized. But Wife also claimed
the rental income was “100% sole and separate and my income,” and
nothing in the conversations indicate Wife intended her statements as
blanket authorization to withdraw funds from the Charles Schwab
accounts. As for the bank statements, some of the expenses Husband
incurred after depositing funds from the Charles Schwab accounts into the
Wells Fargo account, might represent community expenses. But many other
expenditures following the deposits were personal, undercutting
Husband’s claim that he used the funds for community expenses.

¶49            Given these ambiguities and our deference to the superior
court’s assessment of Husband’s credibility, we cannot say the court abused
its discretion by finding his explanations lacking and that the equalization
payment to Wife was warranted. See Lehn, 246 Ariz. at 284, ¶ 20.

F.     The Superior Court Should Have Addressed the Disposition of the
       Community Interests in the Family LLCs and Must do so on
       Remand.

¶50           In their respective pretrial statements, both parties alleged
Wife’s parents had gifted them community membership interests in the
Family LLCs and that a provision of the operating agreements for each
company required that they place these interests in a trust for the benefit of
their two children upon the dissolution of their marriage. The operating
agreements for each company showing the community interests and the
relevant trust provisions were entered into evidence. At the beginning of
the trial, Husband’s counsel explained to the court that disposition of the
community interests in the Family LLCs, including the creation and control
of the trusts contemplated by the operating agreements, remained
unresolved.

¶51           During the trial, both Wife and Husband testified about the
community interests in the Family LLCs and the dispute over the trust
provisions. However, Wife’s counsel objected to the court deciding the
issue, arguing that because their disposition was controlled by the
operating agreements and the Family LLCs had not been joined in the
dissolution proceeding, the community interests in the Family LLCs were
“outside of the jurisdiction of [the superior court]” and “outside the scope

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                         MENGHINI v. MENGHINI
                           Decision of the Court

of th[e] matter.” In the decree, the superior court did not address the parties’
arguments concerning the Family LLCs or the trust provisions.

¶52          Before this court, Husband argues the superior court erred by
not addressing the community’s interests in the Family LLCs, the effect of
the operating agreements, and the terms of the trusts contemplated by
them. Wife counters that the court implicitly and correctly found that it did
not have jurisdiction to decide these issues. We review matters of law,
including questions of jurisdiction, de novo. Thomas v. Thomas, 220 Ariz. 290,
292, ¶ 8 (App. 2009).

¶53           We agree with Husband that the court’s failure to make any
findings concerning the Family LLCs in the decree was error. As the facts
outlined above demonstrate, both the property at issue and the
disagreement over whether the court had the authority to address it were
presented to the court, and neither party disputes the community interests
in the Family LLCs. Although the question of how to divide community
property equitably to each spouse is left to the superior court’s discretion
in a dissolution proceeding, the actual division of identified community
property is not. A.R.S. § 25-318(A) provides:

       In a proceeding for dissolution of the marriage, . . . the court
       shall assign each spouse’s sole and separate property to such
       spouse. . . . [I]t shall also divide the community, joint tenancy
       and other property held in common equitably, though not
       necessarily in kind, without regard to marital misconduct.

(Emphasis added.)

¶54            Wife attempts to justify the court’s silence by arguing that it
can be inferred the court found her arguments concerning its jurisdiction
persuasive and “determined that this issue was not properly before the
[c]ourt.” But Wife has not persuasively shown how the superior court
lacked the authority to address the questions surrounding the community’s
interests in the Family LLCs and effect of the operating agreements in some
manner. The disposition of the community property itself lies within the
court’s authority. A.R.S. § 25-318(A). And to the extent that the dispute
required joinder of third parties, the court could have joined them on its
motion, A.R.S. § 25-314(D), or granted leave for Husband or Wife to join
those parties according to Arizona Rule of Family Law Procedure 33(c).
Thus, while “[w]e will affirm the trial court’s decision if it is correct for any
reason,” we cannot conclude Wife’s asserted explanation for the court’s

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                        MENGHINI v. MENGHINI
                          Decision of the Court

failure to address the Family LLCs is supported here. Glaze v. Marcus, 151
Ariz. 538, 540 (App. 1986).

¶55           Ultimately, without any findings in the decree to explain the
court’s rationale for not addressing the community’s interests in the Family
LLCs, we lack an adequate basis from which we can conclude the issue was
correctly decided. The equitable division of these assets must, therefore, be
addressed on remand.

G.    The Superior Court Should Address the Parties’ Requests for
      Attorney’s Fees and Costs on Remand.

¶56           Both parties argue the superior court erred by denying their
respective requests for attorney’s fees and costs under A.R.S. § 25-324, for
different reasons. However, because we have found error necessitating
further proceedings, we need not address whether the decision regarding
attorney’s fees and costs was erroneous, as the parties may reassert those
claims after whatever proceedings are required. Accordingly, we vacate the
portion of the decree denying the parties’ requests for attorney’s fees and
costs.

                    ATTORNEY’S FEES AND COSTS

¶57           Both parties request an award of attorney’s fees and costs on
appeal under A.R.S. § 25-324. After considering the financial resources of
the parties and the reasonableness of their positions on appeal, in the
exercise of our discretion, we decline to award attorney’s fees and costs.

                              CONCLUSION

¶58           The portions of the decree concerning the characterization of
Corner MCR and the existence of any community liens related to it, the
community liens on the Martha Jane Property and Rudi Lane Property, and
reimbursement to Wife for funds removed by Husband from community
accounts are affirmed. But we vacate portions of the decree concerning the
division of the Waltann Property, reimbursement to Wife’s parents for
post-petition health-insurance payments, and attorney’s fees and costs and
remand for further proceedings consistent with this decision.

                          AMY M. WOOD • Clerk of the Court
                          FILED: AA    20