                               NOTICE: NOT FOR PUBLICATION.
     UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
                     AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.




                                      IN THE
                ARIZONA COURT OF APPEALS
                                  DIVISION ONE


                              In re the Marriage of:

                  BARBARA STEWART, Petitioner/Appellee,

                                          v.

                   GARY STEWART, Respondent/Appellant.

                              No. 1 CA-CV 12-0747
                               FILED 05-29-2014


           Appeal from the Superior Court in Maricopa County
                          No. FN2011-002414
                   The Honorable Sam J. Myers, Judge

      AFFIRMED IN PART, REVERSED IN PART; REMANDED


                                    COUNSEL

Dickinson Wright/Mariscal Weeks PLLC, Phoenix
By Marlene A. Pontrelli
Counsel for Petitioner/Appellee

Pearlstein Law Office PLLC, Phoenix
By Lynn M. Pearlstein
Counsel for Respondent/Appellant
                        STEWART v. STEWART
                         Decision of the Court



                     MEMORANDUM DECISION

Presiding Judge Lawrence F. Winthrop delivered the decision of the
Court, in which Judge Margaret H. Downie and Judge Diane M. Johnsen
joined.


W I N T H R O P, Presiding Judge:

¶1            Gary Stewart (“Husband”) appeals from the allocation of
property in the parties’ decree of dissolution and the award of attorneys’
fees to Barbara Stewart (“Wife”). For the following reasons, we reverse
that portion of the decree related to the issue of Husband’s compensation;
we reverse the portions of the decree related to the issues of the life
insurance policy, the loan to Husband’s separate property business, and
the Chase joint accounts, and remand for further proceedings consistent
with this decision. We affirm the portions of the decree related to the
Wells Fargo investment account and the award of attorneys’ fees to Wife.

                FACTS AND PROCEDURAL HISTORY

¶2            Husband and Wife were married in 1996; each brought to
the marriage a separately owned and operated business, and they
continue to operate those businesses. Husband is also an officer of his
business. In June 2011, Wife filed a petition for dissolution of marriage.

¶3            Relevant to this appeal, the parties disputed at trial: (a)
whether the community was adequately compensated during marriage
for Husband’s work at his separate property business; (b) the community
nature of a life insurance policy insuring Husband and Wife; (c) the
community nature of a Wells Fargo investment account (8700); (d)
whether and to what extent Husband’s pre-marital loan of $185,000 to his
separate property business had been re-paid during marriage; and (e) the
allocation of community funds in certain Chase joint accounts (5871) and
(3014). The parties also disputed whether Wife was entitled to attorneys’
fees.

¶4           The family court ruled: (a) Wife was entitled to half the
amount the court found Husband’s separate property business had under-
compensated the community for Husband’s labor in the last four years of
marriage; (b) the entire life insurance policy was a community asset,



                                    2
                         STEWART v. STEWART
                          Decision of the Court

awarding each party half of its $900,000 cash-surrender value; (c)
Husband’s separate pre-marital deposits into the Wells Fargo investment
account (8700) had been comingled and transmuted so the account had
become community property; (d) Husband failed to demonstrate the pre-
marital loan to his separate property business had not been paid back
during marriage; and (e) Husband used community funds from the Chase
joint bank accounts (5871) and (3014) for purposes not benefiting the
community and, therefore, Wife was entitled to equalization payments
totaling $71,612.70. The court also awarded Wife $54,160.57 in attorneys’
fees and costs based on the disparity of the parties’ financial resources.
Husband filed a timely notice of appeal. We have appellate jurisdiction
pursuant to the Arizona Constitution, Article 6, Section 9, and Arizona
Revised Statutes (“A.R.S.”) section 12-2101(A)(1), (2) (West 2014). 1

                             DISCUSSION

      I.     Compensation During Marriage

¶5            Husband argues the family court erred when it determined
the community had been under-compensated as a result of Husband’s
decision to reduce his annual salary from his separate business in the four
years preceding the petition for dissolution of marriage, and in awarding
Wife half of the amount of under-compensation. The court concluded
“Husband breached his fiduciary obligation to the community by failing
to take fair compensation for the community labor expended” from 2008
to 2011.

¶6           It is undisputed that as the owner of his separate property
business Husband could set his own pay as an officer of the company.
The parties also agree, and the record demonstrates, that beginning in
2008 Husband’s salary as an officer decreased in comparison to previous
years.

¶7          At trial, Wife sought to demonstrate that from 2008 to 2011
Husband’s separate property business “under-compensated” the marital
community for the labor expended by Husband and this “under-
compensation” was the result of Husband’s unilateral decision to take a



1      We cite the current Westlaw versions of the applicable statutes and
court rules unless changes material to our analysis have since occurred.




                                    3
                          STEWART v. STEWART
                           Decision of the Court

reduced salary. 2       Under Wife’s under-compensation theory, the
community could recover the difference between the compensation
Husband should have received and the compensation Husband actually
received because such deliberate under-compensation is a breach of
Husband’s fiduciary duty to the marital community. Implicit in Wife’s
argument is the conclusion that any under-compensation is community
property. The classification of property as separate or community is a
question of law we review de novo. Bell-Kilbourn v. Bell-Kilbourn, 216 Ariz.
521, 523, ¶ 4, 169 P.3d 111, 113 (App. 2007).

¶8            To demonstrate the compensation the community should
have received for Husband’s labor, Wife determined an annual “fair
compensation” figure based on a standardized annual salary for corporate
officers in the relevant industry using data provided by Husband’s
expert.3 Wife then compared Husband’s annual actual compensation to
this “fair compensation” figure and argued that from 2008 to 2011 the
marital community was under-compensated by $304,415. To show that
the “fair compensation” figure was realistic, Wife’s expert testified that
Husband’s business had sufficient cash flow to pay Husband the higher
“fair compensation” amount during those years. Wife argued this under-
compensation in the four years preceding dissolution proved a breach of
fiduciary duty.

¶9           Husband rebutted this evidence by testifying that his
declining compensation from 2008 to 2011 was the result of the general
contraction of the economy and the negative economic trends in the
relevant industry based on technological advances that reduced consumer

2       For the purposes of this “under-compensation” analysis, pursuant
to the expert reports and the arguments of counsel, the court appears to
have considered as compensation only Husband’s salary and the income
from stock ownership of the separate property business. See also Section
II, infra (discussing the payment of life insurance premiums as an
additional form of compensation).

3      Husband argues Wife inappropriately relied on the data supplied
by his expert and intended for separate property business valuation
pursuant to Cockrill v. Cockrill, 124 Ariz. 50, 52, 601 P.2d 1334, 1336 (1979),
and Rueschenberg v. Rueschenberg, 219 Ariz. 249, 257, ¶ 34, 196 P.3d 852, 860
(App. 2008). We disagree. Regardless of what Husband intended this
data to demonstrate, this evidence was properly before the family court to
consider in determining “fair compensation.”



                                      4
                         STEWART v. STEWART
                          Decision of the Court

demand. Using the same “fair compensation” measurement as Wife,
Husband also argued the community was actually over-compensated
throughout the life of the marriage because his annual actual
compensation from 1996 to 2007 exceeded the “fair compensation” figure,
off-setting any under-compensation from 2008 to 2011.

¶10           The family court found that, as a result of Husband’s
unilateral business decision, the community was under-compensated from
2008 to 2011. As a result of this finding, the court concluded Husband
breached his fiduciary duty to the community and awarded Wife half of
the additional $304,415 of compensation the community would have
received had Husband elected to take “fair compensation” during those
years.

¶11           Arizona courts acknowledge the existence of a fiduciary
duty between spouses. See Gerow v. Covill, 192 Ariz. 9, 18, ¶ 40, 960 P.2d
55, 64 (App. 1998). 4 “Removal of community assets without spousal
notice and/or approval can constitute a breach of [fiduciary] duty.” Id. at
18, ¶ 40, 960 P.2d at 64. Wife relies entirely on her analysis of Husband’s
salary falling below the industry standard of “fair compensation,”
coupled with his ability to set his own pay, to establish Husband’s breach
of fiduciary duty to the community. In support of this argument, Wife
cites Gerow and Smith v. Smith, 860 P.2d 634 (Idaho 1993). The facts of
those two cases, however, belie Wife’s argument.

¶12            In Gerow, the husband was self-employed as an independent
consultant through a sole proprietorship. Gerow, 192 Ariz. at 11-12, ¶¶ 2-
5, 960 P.2d at 57-58. A few months after the wife filed a petition for
dissolution, the husband incorporated a second, similar business with his
sister-in-law listed as the sole shareholder, concealing this business from
the wife. Id. The court concluded the husband’s conduct breached his
fiduciary duty to the marital community because he concealed the
incorporation of the second business from the wife and used this
concealed business to remove community assets without notice to the wife



4      Husband urges us to distinguish Gerow from this case by focusing
on the Gerow court’s analysis of Arizona’s Fraudulent Conveyance Act.
Gerow, 192 Ariz. at 17, ¶¶ 33-36, 960 P.2d at 63. We note, however, the
court in Gerow explicitly analyzed the claim of breach of fiduciary duty
independent of the Act. See id. at 17-18, ¶¶ 37-40, 960 P.2d at 63-64.




                                    5
                         STEWART v. STEWART
                          Decision of the Court

and without compensation for the community. Id. at 18, ¶ 40, 960 P.2d at
64.

¶13           In Smith, the husband was a lawyer. In one case, the
husband agreed to receive a reduced fee after his client elected to avoid an
appeal by taking a settlement rather than attempting to collect the full
court award. Smith, 860 P.2d at 643. The reduced fee was less than half
the husband’s hourly rate and also less than a one-third contingency fee
on the settlement amount. Id. The court concluded the husband breached
his fiduciary duty to his wife by accepting the reduced fee. Id.

¶14           In this case, Husband’s conduct does not bear any of the
indicia of a breach of fiduciary duty as established in Gerow or Smith.
First, Wife had notice of the reduced compensation to the community by
way of jointly filed tax returns from 2008 to 2010. 5 Second, Wife does not
point to anything in the record suggesting she objected at the time to
Husband’s decision to take reduced compensation from his separate
property business. Third, the breach in Gerow occurred after the filing of
the petition for dissolution of marriage; in this case, Husband’s declining
compensation began four years prior to the filing of the petition for
dissolution, and Wife does not point to anything in the record that
suggests Husband’s declining salary was a form of so-called “divorce
planning.” Fourth, the degree to which Husband’s annual actual
compensation varied from the annual “fair compensation” figure is not so
drastic as to demonstrate that, on this evidence alone, Husband breached
a fiduciary duty. In 2008, the first year in which Husband’s salary fell
below “fair compensation,” the actual compensation was ninety-eight
percent of the “fair compensation” figure; in 2009, the actual
compensation was eighty-two percent of the “fair compensation” figure;
and in 2010, actual compensation was fifty percent of the “fair
compensation” figure. 6 Although the fifty percent shortfall in 2010 raises


5     We note the record does not contain tax returns from 2011.

6     In its decree, the family court found Husband received $25,000 of
compensation in 2011; however, this figure only takes into account
Husband’s salary and does not include income earned through stock
ownership. Similarly, the decree appears to compare a full year’s “fair
compensation” to Husband’s reported half-year of actual compensation.
On remand, for the purposes of the analysis recommended by Section II of
this decision, the trial court should properly assess the actual



                                     6
                          STEWART v. STEWART
                           Decision of the Court

a concern, Husband adequately explains this shortfall by justifying his
reduced salary on the basis of economic trends from 2008 to 2011, the
undisputed evidence that his separate property business substantially
declined in value over the life of the marriage, and evidence that, over the
entirety of the marriage, his salary trended downward in comparison to
the “fair compensation” benchmark. 7 This explanation is contrasted with
Wife’s bare assertion that Husband breached his fiduciary duty based on a
comparison between the “fair compensation” figure and Husband’s
annual actual compensation. Thus, on this record, we conclude the family
court erred by finding Husband’s conduct breached a fiduciary duty
pursuant to Gerow. 8 We therefore vacate the under-compensation portion
of the trial court’s award to Wife totaling $152,207.50.

       II.    Life Insurance Policy

¶15            Husband argues the family court erred by classifying the life
insurance policy as community property and distributing half of the cash-
surrender value of the policy to Wife. We review de novo the family
court’s classification of property as separate or community. Bell-Kilbourn,
216 Ariz. at 523, ¶ 4, 169 P.3d at 113.

¶16           Under the statutory framework differentiating separate
property from community property, (1) “A spouse’s real and personal
property that is owned by that spouse before marriage . . . and the
increase, rents, issues and profits of that property, is the separate property
of that spouse,” A.R.S. § 25-213(A), and (2) “All property acquired by
either [spouse] during the marriage is the community property of [both
spouses] except for property that is . . . [a]cquired by gift, devise or
descent,” A.R.S. § 25-211(A). Thus, “Property takes its character as


compensation for 2011, taking into account the prorated share of
compensation prior to the petition of dissolution.

7      The expert report valued the separate property business at
$2,610,090 at the date of marriage and $1,118,250 at the date of dissolution.
At the beginning of the marriage, Husband’s salary was 314% of the
annual “fair compensation” figure; by 2007, Husband’s salary was 145% of
the annual “fair compensation” figure.

8       We reach this result without needing to address Husband’s
concerns regarding any selection bias from the family court’s focus on the
last four years of marriage rather than the full length of the marriage.



                                      7
                          STEWART v. STEWART
                           Decision of the Court

separate or community at the time [of acquisition] and retains [that]
character throughout the marriage.” Bell-Kilbourn, 216 Ariz. at 523, ¶ 5,
169 P.3d at 113 (quotation and citation omitted). As a result, “there is a
strong presumption, rebuttable only by clear and convincing evidence,
that all earnings during [marriage] are community in nature.” Cockrill v.
Cockrill, 124 Ariz. 50, 52, 601 P.2d 1334, 1336 (1979) (citation omitted).

              A.     Community Interest in the Policy

¶17            The family court found (a) Husband acquired the insurance
policy in 1995 “in contemplation of marriage to Wife,” (b) “Both Husband
and Wife continue[d] to be named insureds on the policy” during
marriage, (c) “Husband failed to show whether any premiums were paid
prior to marriage,” and (d) “Although Husband claims Trade Printers . . .
paid the premiums, Husband[] admits that he was the owner of the
policy.” From these facts, the court concluded Husband did not “show by
clear and convincing evidence that the policy, in which the premiums
were paid for by Husband’s separate property business during the
marriage, is the separate property of Husband,” and therefore Wife was
entitled to half the cash-surrender value of the policy.

¶18           Contrary to the conclusion of the family court, the record
demonstrates the insurance policy was acquired by Husband in 1995 prior
to marriage. 9 Thus, the policy is Husband’s separate property. See A.R.S.
§ 25-213(A).

¶19          That determination, however, does not end the analysis. See
Rueschenberg v. Rueschenberg, 219 Ariz. 249, 257, ¶ 34, 196 P.3d, 860 (App.
2008). Instead, the family court must determine on remand whether and
to what extent the community contributed to premium payments during
marriage. Cockrill, 124 Ariz. at 54, 601 P.2d at 1338 (“[P]rofits, which result


9      Wife argues on appeal the insurance policy is community property
because “the policy is an asset initially acquired by Husband in
contemplation of marriage.” (Emphasis added). However, because Wife
does not provide any citations to the record or to legal authorities to
develop this argument, we will not consider it on appeal. See ARCAP
13(a)(6) (requiring an opening brief to set forth “[a]n argument which
shall contain the contentions of the appellant with respect to the issues
presented, and the reasons therefor, with citations to the authorities,
statutes and parts of the record relied on.”); ARCAP 13(b) (same
requirement for answering brief).



                                      8
                         STEWART v. STEWART
                          Decision of the Court

from a combination of separate property and community labor, must be
apportioned accordingly.”). In this case, the community could have
contributed to the premiums during marriage by direct payment or by
considering the premium payments made by Husband’s separate
property business as income-substitutes drawn from the profits of that
business in the years the business did not otherwise provide Husband
with “fair compensation.” See Section I, supra.

¶20           In Cockrill, our supreme court addressed the methods by
which a family court might “achieve substantial justice between the
parties” by apportioning the profits or increase in value from one spouse’s
separate property during the life of the marriage. 124 Ariz. at 54, 601 P.2d
at 1338. Although the family court may choose any method that will
achieve substantial justice between the parties, Rueschenberg, 219 Ariz. at
255, ¶ 26, 196 P.3d at 858, one of the methods addressed in Cockrill may be
particularly appropriate in this case.

¶21           The court may “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.” Cockrill, 124 Ariz. at 54, 601 P.2d at 1338 (citation
omitted). In the context of an insurance policy, the court might achieve
substantial justice between the parties by apportioning the cash-surrender
value of the policy on the basis of the respective contributions to the
premium payments made by the community and by Husband’s separate
property business.

¶22           This analysis would require the family court to determine
whether any premium payments made by Husband’s business should be
treated as payments by the community. Under this approach, for any year
in which the business made a premium payment, the court would need to
identify the annual “fair compensation” for the year and compare
Husband’s annual actual compensation to this figure. If Husband’s actual
compensation met or exceeded “fair compensation,” the court would
allocate the premium payment made that year to the separate property
business. If actual compensation that year fell below “fair compensation,”
the insurance premium would be treated as compensation and allocated
to the community until a “fair compensation” benchmark is reached; after
“fair compensation” is reached, the remainder of the annual premium
would be allocated to Husband’s separate property. The court would
then determine the proportion of the total premium amounts paid by the
community and by Husband’s separate property business, and apportion
the cash-surrender value of the policy accordingly.


                                     9
                            STEWART v. STEWART
                             Decision of the Court

¶23           A simple example illustrates this method. Just prior to
marriage, a spouse acquires an insurance policy; the marriage dissolves
ten years later. The annual premium for the policy is fixed at $10. At the
time of dissolution, premium payments total $100 and the policy has a
cash-surrender value of $120. In two years during the life of the marriage,
the annual premium on the policy was paid by a check written on the
community savings account. The other eight premiums were paid by a
business that is the sole and separate property of the spouse who
originally acquired the policy. The family court finds that in five of those
years, the separate property business under-compensated the community
by $4 each year. To achieve “substantial justice between the parties,” the
court would treat $4 worth of premium payments as having been made by
the community in each of the five years in which the community was
under-compensated by the separate business. Thus, out of the total $100
in premium payments, the court would treat $40 (or forty percent) as
having been paid by the community and $60 (or sixty percent) as having
been paid by the spouse’s separate property. The court then would
allocate 40 percent of the cash-surrender value of the policy to the
community and 60 percent to the spouse who acquired the policy.

              B.     Gift

¶24            In this case, the family court alternatively concluded that
Husband gifted the insurance policy and its cash-surrender value to the
community by naming both parties as insureds on the policy as a form of
estate planning. The record does not support this conclusion. The family
court relied on In re Marriage of Inboden, which held that “when a spouse
places separate property in joint tenancy with the other spouse a
presumed gift occurs[.]” 223 Ariz. 542, 544, ¶ 9, 225 P.3d 599, 601 (App.
2010). Assuming without deciding that Inboden would apply to non-real
property, the evidence does not establish that Husband and Wife ever
“jointly-owned” the life insurance policy. Although “the mere form of a
life insurance policy is [not] conclusive on either the issue of ownership or
whether a gift has been made[,]” Neely v. Neely, 115 Ariz. 47, 51, 563 P.2d
302, 306 (App. 1977), there was no evidence presented at trial to establish
the essential elements of a gift. To establish a gift, “there must be donative
intent, delivery and a vesting of irrevocable title upon such delivery.” Id.;
see also In re Marriage of Berger, 140 Ariz. 156, 160, 680 P.2d 1217, 1221
(App. 1983) (holding that donative intent is based on all circumstances
and “not inferred simply because of a marital relationship”).

¶25         On this record, Wife cannot establish donative intent.
Obtained in 1995 prior to marriage, the insurance policy was a “first-to-


                                      10
                         STEWART v. STEWART
                          Decision of the Court

die” policy with Husband and Wife named as the insureds. According to
the policy, in the event of Wife’s death, Husband was the named
beneficiary; in the event of Husband’s death, prior to 2003 his estate was
the named beneficiary and after 2003 his separate property business was
the named beneficiary. 10 Thus, if Husband died first, Wife would receive
a portion of the policy only inasmuch as she received a portion of his
estate, either directly as a beneficiary or through testamentary transfer of
Husband’s separate business; Wife was never a direct beneficiary of this
policy. Further, on this sparse record, the only indication of the parties’
intent is Husband’s testimony that this insurance policy was not intended
to be an estate planning tool. There was no evidence suggesting that
Husband intended to gift Wife an ownership interest in the policy. We
therefore reject this alternative conclusion.

             C.     On Remand

¶26            Two related issues must be addressed on remand. First, the
family court must identify the source and amount of the premium
payments. While the court found Husband’s separate property business
paid $900,000 in premiums during the marriage, citing a report by Wife’s
financial expert, that report does not provide any direct proof of those
payments. Instead, the business’ corporate tax returns show that it paid
for “officer life insurance premiums” during the marriage, in addition to
expenditures paid in 1995 and 1996 before the marriage. 11

¶27           Second, although the issue is not raised by either party on
appeal, on remand the court must also determine how to treat the
$300,000 loan made against the life insurance policy. We have held that
the life insurance policy was Husband’s separate property, but that the

10     The family court concluded Husband breached his fiduciary duty
to Wife by converting a community asset to his separate property when
Husband substituted his separate property business for his estate as a
beneficiary of the policy. Because the insurance policy remained
Husband’s separate property during marriage, this substitution is
irrelevant.

11     There are no corporate tax returns for 2000, 2001, or 2011 for
Husband’s separate property business in the record. Nor do the parties
point to complete records of premium payments during the marriage.
Thus, on this record, it is unclear which annual payments were made from
which sources.



                                    11
                          STEWART v. STEWART
                           Decision of the Court

community may be entitled to be some share of the value of the policy
based on the premiums paid during the marriage. We express no opinion
on the apportionment of this $300,000 loan between community and
separate property. This issue also does not affect our decision regarding
the Wells Fargo investment account (8700) into which the $300,000
amount was deposited. See Section III, infra.

¶28            In sum, we conclude the family court erred in characterizing
the life insurance policy as community property. The policy is Husband’s
separate property because he acquired it before marriage. However, some
portion of the cash-surrender value of the policy appropriately may be
allocated to the community as a result of premium payments made with
community funds or with funds owed to the community by Husband’s
separate property business for his labor. We therefore reverse that portion
of the decree concluding that the life insurance policy is a community
asset and the award of half the policy’s cash-surrender value to Wife. We
remand the resolution of this issue to the family court for further analysis
and judgment consistent with our decision.

       III.   Wells Fargo Investment Account (8700)

¶29          The family court concluded the entire Wells Fargo
investment account (8700) should be considered community property and
divided equally between the parties because the assets of the account
included comingled community and separate property. Husband argues
the court erred by awarding Wife half of the investment account,
contending most of the money is his separate property acquired prior to
marriage and any community assets are easily traceable on the basis of
deposits.

¶30           The character of property is determined at the time of
acquisition, Bell-Kilbourn, 216 Ariz. at 523, ¶ 4, 169 P.3d at 113, and
property acquired by a spouse prior to marriage remains that spouse’s
separate property, A.R.S. § 25-213(A). However, separate property may
be transmuted into community property when there is commingling to
the degree that “the identity of the property as separate or community is
lost.” Potthoff v. Potthoff, 128 Ariz. 557, 562, 627 P.2d 708, 713 (App. 1981).
Although the mere fact of commingling is insufficient to transmute the
entire account to community property, see Guthrie v. Guthrie, 73 Ariz. 423,
426, 242 P.2d 549, 551 (1952), “the burden is upon the person claiming that
the commingled funds, or any portion of them, are separate to prove that
fact and the amount by clear and satisfactory evidence.” Cooper v. Cooper,
130 Ariz. 257, 259-60, 635 P.2d 850, 852-53 (1981) (citation omitted).


                                      12
                         STEWART v. STEWART
                          Decision of the Court

¶31           In this case, Husband opened a Franklin Templeton account
solely in his name prior to marriage, and the account was worth
approximately $508,000 on the date of marriage; at that time, the assets of
this account were his separate property. In 2004, when the assets of the
Franklin Templeton account were transferred to a Wells Fargo advisory
account (5581), this account had increased in value to approximately
$670,000. In August 2005, the separate property funds in the Wells Fargo
advisory account (5581), by then valued at approximately $780,000, were
transferred to Wells Fargo investment account (8700), the account at issue
on appeal. Although both Wells Fargo accounts were held solely in
Husband’s name, Husband acknowledges he deposited community funds
into Wells Fargo investment account (8700). From the creation of that
account to the date of dissolution, the account’s investment holdings
included a mixture of cash, money market accounts, fixed income
securities, and mutual funds. In June 2011, when the petition for
dissolution was served, the Wells Fargo investment account (8700) had a
balance of $1,267,909.20. 12

¶32           Husband argues the identity of the community and separate
property is not lost because the deposits of community funds are traceable
and there were no withdrawals from the investment account after the
deposit of community funds. 13 Although Husband is correct that the

12     The decree states the Wells Fargo investment account (8700) had a
balance of $1,234,677 as of January 31, 2011, while Husband states the
account had a balance of $1,266,053 as of the date of trial. The relevant
balance is that as of June 22, 2011, the date the petition was served,
because that is the date the community’s interest in the account ended.
See A.R.S. § 25-211(A)(2).

13     There was, however, one withdrawal of $296,000 contemporaneous
with a $300,000 deposit. The source of this deposit is the life insurance
policy discussed in Section II. Unlike the other community deposits, this
deposit is fully traceable because it remained in the account for only a few
days before withdrawal and had only a negligible effect on the earnings of
this account. On remand, the trial court must consider whether this
$300,000 amount is community or separate property. The court should
not base its decision on the sum’s brief stay in the community account;
instead, the court should analyze this sum pursuant to the principles
discussed in Section II of our decision.
       Wife also asserts that Husband made “cash withdrawals” from the
account; however, because Wife cites nothing in the record to support that



                                    13
                         STEWART v. STEWART
                          Decision of the Court

deposits are traceable, the testimony by Wife’s expert and the nature of the
investment account at issue in this case lead us to conclude the earnings on
those deposits are not traceable on this record. The investment account
included money market accounts, fixed income securities, and mutual
funds associated with varying yields, so that the community and separate
funds have comingled to the point of obscurity. Wife’s expert also
testified that he could not determine which account investments belonged
to which source of funds.

¶33           On appeal, Husband suggests this court treat the value of
the account prior to the transfer of assets into Wells Fargo investment
account (8700) as separate property, awarding Husband that amount from
the total value at the date of dissolution; Husband then suggests this court
treat all deposits into and increases in the value of the account after that
point as community property. While this may have been an approach to
suggest to the family court, we are not the trier of fact. We further note
that Husband’s proposed solution does not apportion the losses suffered
by the account during the relevant time period. 14

¶34           Husband also argues the family court erred because the
community deposits make up a negligible part of the whole account. Cf.
Noble v. Noble, 26 Ariz. App. 89, 95-96, 546 P.2d 358, 364-65 (1976) (“The
[principle that] commingling of separate and community funds into one
account does not transmute the entire account into a community account
so long as the funds remain traceable . . . is especially true where the
community funds commingled are negligible in comparison to the
separate funds.” (citation omitted)). We disagree with Husband’s
characterization of the community funds as “negligible.” The New
Oxford American Dictionary defines “negligible” as “so small or
unimportant as to be not worth considering.” The New Oxford American
Dictionary 1137 (2d ed. 2005). Here, the deposits Husband concedes are
community funds make up a non-negligible twenty-three percent of the
total value of the account at the time the petition for dissolution was
served, even without accounting for any return on those community



statement, we will not consider this argument on appeal. See ARCAP
13(a)(6), (b).

14   For example, the total account value decreased from August 2008 to
August 2009.




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                          Decision of the Court

deposits. 15 For these reasons, we affirm the award to Wife of half the total
balance of the funds in Wells Fargo investment account (8700).

      IV.    Loan to Husband’s Separate Property Business

¶35          Husband’s sole and separate business borrowed $185,000
from Husband before the marriage, and hundreds of thousands of dollars
more from the community during the marriage. The family court found
the business had repaid $307,304 but owed $594,454 at the time of
dissolution. Evidence at trial was that loan payments from the business
during the marriage were deposited into the community bank account,
and Wife’s expert testified that the business had not repaid the loan
Husband made prior to the marriage.

¶36           Husband argues the court erred when it impliedly
concluded the business had repaid the $185,000 he loaned the company
before marriage. He argues the $594,454 that the court found the business
owed to the community should be reduced by $185,000, the amount still
owing on his pre-marital loan to the business. The court found Husband
failed to prove the existence of the pre-marital loan because it was not
evidenced in writing. Accordingly, the decree of dissolution treats the
loan as a loan from the community, requires Husband to pay half of the
present $594,454 loan balance to Wife and awards the note to Husband.
We review the family court’s factual findings under a clearly erroneous
standard, see Hrudka v. Hrudka, 186 Ariz. 84, 91, 919 P.2d 179, 186 (1995),
but we review the characterization of the note as separate or community
property de novo. See Bell-Kilbourn, 216 Ariz. at 523, ¶ 4, 169 P.3d at 113.

¶37          As a preliminary matter, we conclude the family court erred
by finding Husband failed to prove the existence of a pre-marital loan
from Husband to his separate property business. The court relied on the
absence of a written note to find that no loan existed prior to marriage.
The absence of a written note evidencing a loan, however, does not negate
uncontroverted testimony at trial of the existence of such a loan. Cf. A.R.S.


15     Husband also appears to invoke that part of the decree that permits
the parties to stipulate to the retention of a third-party mediator to
determine the apportionment of co-mingled accounts; however, by its
terms this portion of the decree is inapplicable without the consent of both
parties and Wife does not appear to stipulate to this proposed method of
apportionment. As a result, we need not reach the merits of such an
approach.



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                          Decision of the Court

§ 12-543(1) (entitled “Oral debt”). In this case, ample evidence in the
record demonstrates the existence of a pre-marital loan: Husband cites the
business valuations conducted in 1996 and 1997 as proof of the existence
of a pre-marital loan; Wife testified that she knew of the $185,000 pre-
marital loan balance in 1996; and Wife’s expert also testified about
Husband’s pre-marital loan and assumed in his report that it had not been
repaid.

¶38           With the existence of the pre-marital $185,000 loan
established, the issue becomes whether Husband’s separate property
business repaid the pre-marital loan prior to service of the petition for
dissolution.

¶39           Property acquired during marriage is presumed to be
community property. A.R.S. § 25-211(A). “[T]he spouse seeking to
overcome the presumption has the burden of establishing a separate
character of the property by clear and convincing evidence.” Thomas v.
Thomas, 142 Ariz. 386, 392, 690 P.2d 105, 111 (App. 1984). Therefore, the
court erred by placing the burden on Husband to demonstrate the loan
payments by his separate property business were community property;
instead, Wife bears the burden to prove that these payments to the
community were, in fact, payments to Husband on the pre-marital portion
of the loan.

¶40           Turning to the evidence, Husband’s expert report stated the
separate property business had paid the community $307,304 during the
marriage. The record does not establish whether these loan payments
were applied to the balance on the separate pre-marital loan or the
subsequent community loans. In her testimony, Wife could not say
whether the pre-marital loan had been paid. The evidence establishes that
payments from the separate property business went into a community
bank account. Assuming that at least a portion of these payments were
loan repayments, Wife failed to establish that any loan payments were
designated to repay the pre-marital loan. Because Wife failed to meet her
burden, we reverse that portion of the decree awarding Wife half the
outstanding loan balance and remand for reconsideration of this issue
consistent with this decision.

      V.     Division of Chase Joint Accounts (5871) and (3014)

¶41           The family court found Husband used Chase joint accounts
(5871) and (3014) to pay separate expenses and concluded Wife was
entitled to half the amount Husband spent on these expenses. We review



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                           Decision of the Court

the court’s distribution of community property for an abuse of discretion,
Bell-Kilbourn, 216 Ariz. at 523, ¶ 4, 169 P.3d at 113, and we will not disturb
the court’s decision “[u]nless it clearly appears that the trial judge has
mistaken or ignored the evidence.” Armer v. Armer, 105 Ariz. 284, 289, 463
P.2d 818, 823 (1970).

¶42            Husband contends the court’s findings of fact are clearly
erroneous and Wife was not entitled to reimbursement because she had
already withdrawn her share of the funds in these community accounts.
Wife did not respond to this issue on appeal. Although failure to respond
to a contested issue may constitute a confession of error, Hecla Mining Co.
v. Indus. Comm’n, 119 Ariz. 313, 314, 580 P.2d 774, 775 (App. 1978), we
exercise our discretion to address the merits of Husband’s argument and
to clarify any issues that might arise on remand.

¶43           The decree stated Wife received $15,600 from these
community accounts. Wife admitted in her testimony, however, that she
withdrew an additional $35,000 from the joint accounts after service of the
petition for dissolution; the July 2011 statement for Chase joint account
(5871) appears to reflect this withdrawal. Husband identified the $35,000
withdrawal in the joint pretrial statement and in his proposed findings of
fact and conclusions of law order, but the family court apparently
overlooked this evidence and did not account for this $35,000 in allocating
the funds in the joint accounts.

¶44           Husband also contends that he used this account to pay
$12,015.88 of expenses that benefitted Wife. Wife testified that Husband
paid the utilities for her Flagstaff home from this account, and there is
evidence that Husband paid Wife’s American Express charges after the
date the petition for dissolution was served. Although there was no direct
testimony regarding Husband’s payment of Wife’s credit card charges, the
exhibits establish these payments, and Husband raised this issue in his
proposed findings of fact regarding reimbursement.

¶45          We reverse that portion of the decree awarding Wife
reimbursement for Husband’s use of the community funds in the Chase
joint accounts (5871) and (3014). On remand, the family court should
consider the total amount of funds Wife received and any expenses
Husband paid on Wife’s behalf from these joint accounts in calculating
any reimbursement to Wife.




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      VI.    Award of Attorneys’ Fees

¶46           The family court awarded Wife $54,160.57 in attorneys’ fees
and costs based on the disparity in the parties’ financial resources and the
reasonableness of the parties’ positions. We review the family court’s
award of attorneys’ fees under an abuse of discretion standard. Hrudka,
186 Ariz. at 94-95, 919 P.2d at 189-90.

¶47             The decree does not indicate whether it found Husband’s
positions unreasonable; the decree does state that Husband has
substantially greater assets than Wife. Pursuant to A.R.S. § 25-324(A), the
trial court may award fees where there is a financial disparity between the
parties. See Magee v. Magee, 206 Ariz. 589, 593, ¶ 18, 81 P.3d 1048, 1052
(App. 2004) (holding that an applicant need not be unable to pay his or
her own fees, but that relative financial disparity “is the benchmark for
eligibility.”). Given the resolution on appeal, the financial disparity
between the parties will likely not change on remand. Accordingly, the
court did not abuse its discretion in awarding Wife her attorneys’ fees and
costs at trial.

¶48           Wife requests an award of attorneys’ fees on appeal
pursuant to A.R.S. § 25-324. After considering the statutory factors, in an
exercise of our discretion we decline to award Wife attorneys’ fees.

                             CONCLUSION

¶49           We reverse that portion of the decree of dissolution of
marriage related to the issue of compensation and vacate the award to
Wife associated with this issue. We reverse and remand that portion of
the decree related to the life insurance policy and vacate the award
associated with this issue; on remand, the community is entitled to
reimbursement for the premiums paid by community funds or labor, but
not the entire cash-surrender value. We reverse that portion of the decree
related to the loan to Husband’s separate property business, vacate the
associated award of half the loan value to wife, and remand the issue to
the family court consistent with the presumption that loan payments
received during the marriage were repayments of the community loan.
We affirm that portion of the decree related to the apportionment of
comingled funds in Wells Fargo investment account (8700). We reverse
that portion of the decree related to the division of assets in the Chase
joint accounts (5871) and (3014), vacate the associated award, and remand
the issue to the family court for reconsideration, including the total funds
Wife received from the accounts and any expenses Husband paid on



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                          Decision of the Court

Wife’s behalf from these accounts after the petition for dissolution was
served. Finally, we affirm the award of attorneys’ fees and costs to Wife at
trial. Wife has requested an award of fees on appeal. In the exercise of
our discretion we deny that request.




                                  :gsh




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