                                   IN THE
             ARIZONA COURT OF APPEALS
                              DIVISION ONE


                            In re the Matter of:

            MICHAEL E. HAMMETT SR., Petitioner/Appellee,

                                     v.

      ANN PEARL JOY CUIZON HAMMETT, Respondent/Appellant.

                         No. 1 CA-CV 18-0632 FC
                             FILED 10-29-2019


           Appeal from the Superior Court in Maricopa County
                          No. FN2015-071793
                          No. FN2017-002640
                             (Consolidated)

               The Honorable Lori Horn Bustamante, Judge
                The Honorable Frank W. Moskowitz, Judge

   VACATED IN PART AND REMANDED WITH INSTRUCTIONS


                                   COUNSEL

Lincoln & Wenk PLLC, Goodyear
By Michael Lincoln
Counsel for Petitioner/Appellee

DeRoon & Seyffer, Phoenix
By Charles R. Seyffer
Counsel for Respondent/Appellant
                          Hammett v. Hammett
                          Opinion of the Court



                                OPINION

Presiding Judge Paul J. McMurdie delivered the opinion of the Court, in
which Chief Judge Peter B. Swann and Judge Diane M. Johnsen joined.


M c M U R D I E, Judge:

¶1            Ann Hammett (“Wife”) appeals from the property
distribution in the decree annulling her marriage to Michael Hammett
(“Husband”) and the superior court’s subsequent orders. We hold parties
acquire community property and debt even during a marriage that results
in an annulment; and, when terminating the marriage, the court must
dispose of such assets and debt under Arizona Revised Statutes (“A.R.S.”)
section 25-318, to the extent applicable. Because the superior court and the
parties assumed the couple had acquired no community property, we
vacate the decree’s property disposition and remand for further
proceedings consistent with this opinion.

             FACTS AND PROCEDURAL BACKGROUND

¶2             Husband met Wife while she lived in the Philippines. The
couple married in Nevada in November 2009, after Wife obtained a fiancé
visa. See 8 U.S.C. § 1101(a)(15)(K)(i) (2006). In November 2015, Husband, as
the sole signatory, obtained a loan for $78,600, secured by a house that was
his separate property (the “Loan”). That same month, Husband purchased
a condominium for $58,000, titled in both spouse’s names as community
property with the right of survivorship. Less than two weeks later,
Husband petitioned for the dissolution of the parties’ six-year marriage.

¶3            In August 2016, Wife moved for a temporary order for
spousal maintenance. She claimed that she was unable to work because of
a car accident, Husband had been supporting the couple for the duration of
their marriage, and he had ended all financial support earlier in the year.
The court discussed Wife’s motion during a resolution management
conference and ordered the parties to exchange financial affidavits. At the
conference, Husband asserted—for the first time—that Wife was married
to another man when the couple married.

¶4           After Wife submitted her financial affidavit, over Wife’s
objection Husband moved to dismiss his petition for dissolution. He argued



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                           Opinion of the Court

that the court must dismiss the dissolution action because of the “mutual
fraud committed by both parties” and asserted that Wife was still married
to her first husband. He alleged that before their marriage in 2009, the
parties conspired to have a fake death certificate produced to allow Wife to
enter the United States with a fiancé visa. Husband submitted emails
between him and a third party from 2008 in which he expressed his
frustration with the time and cost of an annulment in the Philippines, and
solicited the help of the third party to either “find[] a judge and pay[] him
off” or create a fake death certificate.

¶5            The court held an oral argument on Husband’s motion in
February 2017—more than a year after Husband petitioned for dissolution.
Because the parties presented evidence outside of the pleadings, the court
treated the motion to dismiss as a summary judgment motion. See Ariz. R.
Fam. Law P. 32(B) (2006) (repealed effective January 1, 2019, see now Ariz.
R. Fam. Law P. 29 (2019)). Husband argued that because Wife’s marriage to
her first husband had never been dissolved, their subsequent marriage was
invalid. Husband asserted that even though Wife had unsuccessfully tried
to locate her first husband for 19 years before she married Husband, she
had failed to comply with the law in the Philippines to have her first
husband presumed dead and the marriage dissolved. Accordingly,
Husband argued Wife’s first husband “must be presumed to be alive.”

¶6           The court dismissed the dissolution petition based on Wife’s
admission that she failed to have her first husband presumed dead, and her
previous marriage annulled. The court held Wife did not correctly dissolve




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                           Opinion of the Court

her first marriage under Philippine law, which rendered her subsequent
marriage to Husband invalid. 1

¶7             In March 2017, Husband petitioned for annulment. Before the
resulting trial, the parties agreed that Husband’s house would remain his
separate property and that each spouse would “keep their retirement
accounts and bank accounts in their own names” and “the debts in their
own names.” The court found that the parties knowingly, intelligently, and
voluntarily entered into a binding agreement that was fair and equitable
under Arizona Rule of Family Law Procedure (“Rule”) 69.

¶8             The parties then presented evidence on the remaining
unresolved claims—mainly, their interest in the condominium, the Loan,
and Wife’s allegation that she contributed over $30,000 in repairs and
improvements to the condominium after service of the dissolution petition.
After the trial, the court ruled that “all community property rights and
obligations acquired by marriage are void ab initio with respect to both
parties as to all property, income, and liabilities received or incurred from
the date of the annulled marriage.” The court then ordered that the parties
owned the condominium as tenants in common and directed Wife to buy
out Husband’s one-half interest in the condominium by refinancing the
loan in her name before August 19, 2018, or place the condominium on the
market on or before September 1, 2018. The court further ordered Wife to
pay any mortgage payments, HOA fees, and taxes so long as she continued
to live in the condominium. The court declined to grant either party any
additional funds from the proceeds of the condominium for improvements
to it.


1      The Arizona Constitution prohibits “[p]olygamous or plural
marriages, or polygamous cohabitation,” Ariz. Const. art. 20, par. 2. Under
A.R.S. § 25-301, a court may dissolve a marriage and issue an annulment
decree when the marriage is “void.” The legislature has defined what
constitutes a “void and prohibited” marriage. A.R.S. § 25-101. Different
types of marriages are prohibited in Arizona, see, e.g., A.R.S. § 25-102(B)
(“Persons who are under sixteen years of age shall not marry.”), but only a
few are codified under A.R.S. § 25-101 as “void.” The legislature has not
defined a polygamous marriage as one that is void, but the conduct is
punishable under A.R.S. § 13-3606. The parties have not raised the issue of
whether the court correctly issued an annulment decree rather than a
dissolution decree. Therefore, we will assume without deciding that an
annulment decree was the proper vehicle to dissolve the parties’ marriage.



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                            Opinion of the Court

¶9            Husband moved the court to clarify its ruling concerning the
condominium sale proceeds and the Loan. The court did not explain its
decision until after the 90-day deadline passed for Wife to refinance the
Loan. The court clarified that the condominium “sale proceeds shall first be
applied to the [Loan]” and “any remaining proceeds shall be equally
divided.” The court again ordered Wife to “refinance the mortgage in her
name alone” if she wanted to retain possession of the condominium. The
balance of the Loan was $75,350.94, which exceeded the amount necessary
to buy out Husband’s interest in the condominium.

¶10            Wife—unclear of the amount she was to refinance and the
deadline to do so because of the court’s amended ruling—had not
refinanced the home by the time set by the court, so eventually, Husband
moved to sell it. Ultimately, the court ordered the condominium to be sold
and ruled that from Wife’s share of the proceeds, she must pay Husband
$3980 in attorney’s fees and costs and reimburse him for the taxes,
mortgage, and HOA fees he had paid since service of the petition. The
condominium sold in February 2019, yielding net proceeds of $33,793.81,
all of which went to Husband after Wife made the required reimbursements
to him out of her share. The sale proceeds were distributed according to the
court’s order.

¶11           Wife filed a timely notice of appeal from the decree of
annulment, and we have jurisdiction under A.R.S. § 12-2101(A)(2),
Rule 78(c) (2019), and Arizona Rule of Civil Appellate Procedure 9(c).

                               DISCUSSION

¶12           The parties disagree whether the superior court had the
power to order them to pay off the Loan from the proceeds of the
condominium sale before splitting the remaining proceeds. Wife reiterates
the superior court’s conclusion that the annulment voided the community
and argues that Husband gifted her the interest in the condominium. She
contends, however, that in an annulment proceeding, the court is only
permitted to distribute property and may not divide debt.

¶13             The superior court’s characterization of property is a question
of law that we review de novo. In re Marriage of Pownall, 197 Ariz. 577, 581,
¶ 15 (App. 2000). We review the superior court’s division of assets and
liabilities for an abuse of discretion. In re Marriage of Flower, 223 Ariz. 531,
535, ¶ 14 (App. 2010). “A trial court abuses its discretion when it misapplies
the law or predicates its decision on incorrect legal principles.” State v.
Jackson, 208 Ariz. 56, 59, ¶ 12 (App. 2004).



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                            Opinion of the Court

¶14            Property acquired by either spouse during a marriage is
community property. We hold that an annulment does not change the
status of the community property, and, in such a case, the court must
allocate the community property and debt just as it would in a dissolution
proceeding. Because the superior court here based its decision on incorrect
legal principles, we vacate the decree dividing the couple’s assets and
liabilities and its orders for Wife to reimburse Husband for his separate
expenses, attorney’s fees, and community expenses. We remand for the
court to make a distribution considering the entirety of the community.

A.     A Marriage that Results in an Annulment Still Creates a
       Community, and the Superior Court Must Equitably Divide the
       Community Assets and Debts When Dissolving the Marriage.

              An Annulled Marriage Nonetheless Creates a Community.

¶15           “Superior courts may dissolve a marriage, and may adjudge
a marriage to be null and void when the cause alleged constitutes an
impediment rendering the marriage void.” A.R.S. § 25-301. “If grounds for
annulment exist, the court to the extent that it has jurisdiction to do so, shall
divide the property of the parties . . . .” A.R.S. § 25-302(B). The issue we
have to resolve is whether an annulment alters the community status of the
property or debt created while the parties were married. We hold that it
does not.

¶16           Distributing property and debt after marriage is a “statutory
action, and the [superior] court has only such jurisdiction as is granted by
statute.” Weaver v. Weaver, 131 Ariz. 586, 587 (1982). The community
property statute, A.R.S. § 25-211, does not distinguish between community
property acquired during a marriage that is subsequently dissolved and
community property acquired during a marriage that is subsequently
annulled. The statute states:

       A.    All property acquired by either husband or wife
       during the marriage is the community property of the
       husband and wife except for property that is:

              1.      Acquired by gift, devise or descent.

              2.     Acquired after service of a petition for
              dissolution of marriage, legal separation or annulment
              if the petition results in a decree of dissolution of
              marriage, legal separation or annulment.



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                           Opinion of the Court

       B.     Notwithstanding subsection A, paragraph 2, service of
       a petition for dissolution of marriage, legal separation or
       annulment does not:

              1.    Alter the status of preexisting community
              property.

              2.    Change the status of community property used
              to acquire new property or the status of that new
              property as community property.

              3.     Alter the duties and rights of either spouse with
              respect to the management of community property
              except    as    prescribed     pursuant     to   [A.R.S.
              § 25-315(A)(1)(a)].

(Emphases added.)

¶17            As applied here, under A.R.S. § 25-211(A)(2), all property
acquired “during the marriage is . . . community property . . . except for
property that is . . . [a]cquired after service of a petition for
dissolution . . . or annulment” that results in a dissolution or annulment.
The statute thus presupposes that an annulment does not invalidate the
community status of property acquired during the marriage, any more than
a dissolution might invalidate the community status of property acquired
during a marriage. Indeed, the relevant judicial proceeding—dissolution or
annulment—is irrelevant for purposes of the statute. Subpart (B) of the
statute makes the same point when it states that “service of a petition
for . . . annulment does not . . . [a]lter the status of preexisting community
property.”

¶18             The corresponding statute concerning separate property
supports the same conclusion. Under A.R.S. § 25-213(B), property acquired
by a spouse “after service of a petition for dissolution . . . or annulment
is . . . the separate property of that spouse” if the petition results in a
dissolution or annulment. If, as the superior court concluded here,
community property principles do not apply to property acquired during a
marriage that is annulled, the distinction the statute draws between
property obtained before and after service of an annulment petition would
be immaterial.

¶19           As for debt incurred during a marriage, A.R.S. § 25-214(C)(3)
likewise allows either spouse to unilaterally bind the community to debt
except, as relevant here, “after service of a petition for dissolution . . . or


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                           Opinion of the Court

annulment” that results in a dissolution or annulment. As in A.R.S.
§ 25-211, the legislature has mandated that the service of a petition for
annulment has the same consequence as the service of a petition for
dissolution. Just as A.R.S. § 25-211 presupposes that property acquired
during a marriage that is annulled remains community property, A.R.S.
§ 25-213(C) presupposes that debt acquired by one spouse during a
marriage binds both spouses even after the marriage is annulled. It would
be unnecessary to discontinue the accrual of community property and
community debt after service of the petition if the annulment itself resulted
in the nullification of the community. See City of Mesa v. Killingsworth, 96
Ariz. 290, 294–95 (1964) (“The presumption is that the legislature did not
intend to do a futile thing by including [language that] is not operative.“).

¶20           We acknowledge that our supreme court once held that
“where there was no valid marriage of appellant to appellee, there can be
no acquisition of property rights based on their marital status.” Cross v.
Cross, 94 Ariz. 28, 31 (1963). The statutes cited above, however, were
enacted or amended after the Cross decision, and render it inapplicable
here. To the extent Cross conflicts with the current marital property statutes,
A.R.S. §§ 25-211 to -215, it has been superseded.

              In an Annulment Action, the Superior Court is to Allocate
              the Community’s Assets and Debts under A.R.S. § 25-318.

¶21            Citing A.R.S. § 25-302(B), Wife argues that the only authority
for the superior court to divide jointly held property in a family proceeding
is A.R.S. § 25-318(A), which requires an equitable distribution. She asserts
that the court erred by considering Husband’s Loan under A.R.S.
§ 25-318(B) because there is no authority in Title 25 for the allocation of
marital or separate debts in an annulment proceeding.

¶22            We disagree. As discussed above, the court has the authority
to divide property in an annulment proceeding. The court has that power
under A.R.S. § 25-302(B), applying the principles in A.R.S. §§ 25-211
through -215, and the division of community property includes the
allocation of community debts. Cadwell v. Cadwell, 126 Ariz. 460, 462 (App.
1980) (although the dissolution statutes do not expressly grant authority to
allocate debts between the parties, “[a]ssets and obligations are reciprocally
related and there can be no complete and equitable disposition of property
without a corresponding consideration and disposition of obligations”).

¶23           “If grounds for annulment exist, the court to the extent that it
has jurisdiction to do so, shall divide the property of the parties . . . .”



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                           Opinion of the Court

A.R.S. § 25-302(B). This provision grants the court authority to divide the
community unless the court otherwise lacks jurisdiction to do so. Therefore,
in an annulment action, the court has the same authority to allocate debts
as in a dissolution or separation action. See A.R.S § 25-318(B)–(G).

B.     The Court Must Divide the Couple’s Property Following
       Community Property Principles.

¶24          Husband urges this court to affirm the superior court’s
property division arguing that the court adequately considered the Loan
according to A.R.S. § 25-318(B). However, when dividing the community,
the court is to consider all community assets and debts in making an
equitable property distribution. A.R.S. § 25-318(A).

¶25           Before the annulment trial, the court accepted the parties’
agreement for Husband’s house to remain his separate property and for
each spouse to “keep their retirement accounts and bank accounts in their
own names” and “the debts in their own names” as a binding agreement,
pursuant to Rule 69, and found that the agreement was entered into
“knowingly, intelligently and voluntarily,” and was “fair and equitable.”
The court’s acceptance of the parties’ agreement, however, was predicated
on the incorrect legal principle that the annulment voided the creation of
the community. Therefore, the court could not correctly find that the parties
acted with full knowledge of their property rights when they entered the
agreement; nor could it determine whether the agreement was “fair and
equitable.” See Buckholtz v. Buckholtz, 246 Ariz. 126, 132–33, ¶ 24 (App. 2019)
(the court must determine whether a party acted with full knowledge of his
separate property rights when he entered into an “unfair” agreement).
When the court accepts a Rule 69 agreement based on an erroneous view of
the law governing the marital estate, the agreement cannot be enforced
absent novation. Accordingly, we vacate that portion of the decree
concerning the disposition of property and debt.

¶26           Wife also requests that we vacate “all orders entered in
connection with proceedings by Appellee for the enforcement of the Decree
of Annulment after Appellant’s Notice of Appeal.” Pursuant to the court’s
order, the condominium has been sold. We cannot unwind the sale, but we
vacate the disposition of the parties’ property and debt, including
reimbursement, contribution, outstanding fees related to the condominium,
and the awarded attorney’s fees. On remand, the court may consider the
amounts that Husband or Wife paid to maintain community assets as it
would in any other proceeding dividing community property. See Bobrow
v. Bobrow, 241 Ariz. 592, 596, ¶ 19 (App. 2017) (post-petition maintenance of


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                           Opinion of the Court

community assets from separate funds to be accounted for in “equitable
property distribution”).

C.     Husband’s Loan is Not a Separate Debt and Must be Considered
       in the Community Property Distribution.

¶27           Concluding that the couple established a community does not
resolve the parties’ dispute regarding the allocation of the Loan. The court
did not expressly characterize the nature of the Loan, but effectively found
Wife responsible for half of the obligation by ordering that the parties first
apply the condominium sale proceeds to pay off the Loan.

¶28           Husband maintains that because he obtained the Loan during
the marriage for the benefit of the community, it is a community debt. See
A.R.S. § 25-214(C). Wife argues that because A.R.S. § 25-214(C)(1) requires
joinder of both spouses to bind the community in any transaction for the
acquisition, disposition, or encumbrance of an interest in real property, the
Loan should be viewed as Husband’s separate debt. Wife maintains that
because Husband obtained the Loan as the sole signatory and using his
separate real property as security, the Loan is Husband’s separate debt
under the statute. We disagree with Wife.

¶29            Generally, all liability incurred by either spouse during a
marriage is presumed to be a community obligation. Flower, 223 Ariz. at
535, ¶ 12. This presumption applies to debt secured by separate property,
Johnson v. Johnson, 131 Ariz. 38, 45 (1981) (“[W]e [do not] see any reason why
the [community obligation] presumption should be negated by the fact that
the husband used his separate property to secure the community loans.”),
unless there is a statutory exception, Vance-Koepnick v. Koepnick, 197 Ariz.
162, 163, ¶ 6 (App. 1999) (guaranty exception applicable).
Section 25-214(C)(1) provides that “[e]ither spouse separately may acquire,
manage, control or dispose of community property or bind the community,
except that joinder of both spouses is required” for “any transaction for the
acquisition, disposition or encumbrance of an interest in real property.”
(Emphasis added.) The Loan was not a purchase money loan on the
condominium, nor did it encumber a community asset; therefore, the
statutory exception under A.R.S. § 25-214(C)(1) does not apply. On remand,
the court shall consider the loan as a community debt to be considered
when equitably dividing the community.

                              CONCLUSION

¶30          We vacate the property and debt orders in the annulment
decree and remand for further proceedings consistent with this opinion.


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                         Hammett v. Hammett
                         Opinion of the Court

Wife did not request attorney’s fees, but as the successful party, she is
entitled to costs upon compliance with ARCAP 21.




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

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