Recent Ruling - Undisclosed Line of Credit on Marital Residence
The Court of Appeals affirmed The Honorable Judge Hugh Hegyi's ruling in Frantz v. Frantz, 2009 WL 4981533 (Ariz.App. Div. 1), a case that dealt with an issue that is becoming more and more common in Arizona as a result of the State's heavy financial reliance of the real estate market. In Frantz, Husband appealed from a decree of dissolution arguing that the family court erred in its determination that a second lien secured by the marital residence was not a community obligation. At the dissolution hearing, Husband, Wife, and a real estate appraiser testified. Judge Hegyi stated:
“In finding that the community has $92,000 in equity in the [residence], the court does not deduct the value of the $84,000 second lien on that property. It finds that WIFE has established by clear and convincing evidence that the lien is not a community obligation. The money was received by HUSBAND alone. HUSBAND alone had the ability to explain what happened to the proceeds of the loan, and has failed to do so. After observing the parties' demeanor in testifying, the court finds HUSBAND expended these proceeds in a manner that was not intended to, and did not, benefit the community."
Husband filed a motion to alter or amend the decree requesting that the court value the residence at $8,000 - an amount reflecting the fair market value minus any and all of the liens and encumbrances obtained by the parties during the marriage. The court denied Husband's motion.
Husband first argues that the trial court erred in finding that the second lien secured by the marital residence was not a community obligation. The Court of Appeals found no error stating:
"Husband submitted a statement indicating that the balance on the line of credit was $83,096 as of March 2007. Husband only testified that the line of credit was opened prior to February 2007, and that he wanted the value of the residence to reflect the two liens that were secured by the house. Wife testified that she was not aware of what the funds from the line of credit were used for. Wife also testified that she did not believe that the line of credit should be included in reducing the equity in the property. Based on the above, the trial court did not err in finding that that Wife overcame the presumption that the second lien was a community obligation."
Bottom line, credibility counts! What Judge Hegyi obviously concluded was that the Husband tried to pull a "fast one" and was caught without an explanation as to where the money went. The Court of Appeals agreed. The moral of this case can be summed up as follows: "if it smells funny, something probably stinks" or if you prefer, "where there is smoke there is usually fire".
