JANUARY 28, 2013 VOLUME 20 NUMBER 4
At Fleming & Curti, PLC, we don't spend much time reading appellate decisions about divorce, property division and child support. That's because we don't practice family law, and there's plenty to keep up with in our chosen realms of law. But a recent decision from the Arizona Court of Appeals caught our attention. Although it arises from a divorce case, it involves a number of issues we frequently deal with.
Carl Gregor filed for divorce from his wife Evelyn Gregor (not their real names) in 2005 in Phoenix. Carl had been disabled while working for the federal government, and received a monthly payment from the Federal Employees' Compensation Act. Evelyn, a retired teacher, received a monthly state retirement check. The couple had an adult son, Aaron, who was disabled. The divorce proceeded through a trial and an appeal in 2009; the appellate court sent the matter back for further proceedings, and another set of hearings was held.
After the new trial and entry of an modified Decree of Dissolution, both Carl and Evelyn appealed. For good measure, Aaron appealed as well -- he argued that his mother should have been ordered to pay support for him because he was disabled. The Court of Appeals reviewed the competing arguments and addressed three items of interest to elder law and estate planning lawyers:
Evelyn's "buy-out" annuity was community property. In her last year of teaching, and just before the first divorce decree was entered, Evelyn's school district had offered long-time teachers a "buy-out" arrangement. It's purpose was to get teachers to retire early, and it amounted to a one-year annuity, at the teacher's current salary, if Evelyn would agree to leave her post before she was required to retire. She took the deal.
But was her one-year annuity community property? If so, then Carl would be entitled to receive some portion of her payments, or some property of roughly equivalent value. If not, then she could keep those monthly payments without having to share.
The trial court determined that the buy-out arrangement was akin to a severance package, intended to compensate her for future earning. Consequently, the annuity was not divided in the divorce decree. The Court of Appeals disagreed, finding that the annuity was more like retirement benefits, albeit not from the state retirement system.
The fact that the buy-out payments were not to be made until after the divorce was immaterial, ruled the appellate court. Carl was entitled to a credit in the divorce calculations for the payments Evelyn received. The precise calculation would need to be made by the trial judge, and so the Court of Appeals returned the matter for yet another evidentiary hearing to determine how to divide the payments.
Carl's life insurance policies were at least partly community property. Carl held two whole-life insurance policies, on his own life. He testified that he had paid $40,000 in an initial payment on the policies, using an inheritance received from his mother's estate (and, incidentally, that he had never told Evelyn about the inheritance or the policies while they were married). But he had made monthly premium payments of about $255 on the policies while the couple was married.
The trial judge ruled that Carl had produced enough evidence about the life insurance policies to overcome the presumption that they were community property, and awarded them to Carl alone. The Court of Appeals disagreed, and remanded this issue to the trial judge for another determination of the nature of the policies. Though they might not be entirely community property, ruled the appellate judges, some portion of the value of the policies belonged to the community and an equitable division needed to be made.
Aaron was not entitled to child support. Arizona law permits a divorce court to award support for an adult child if that child was severely disabled before reaching age 18. Carl sought an award of child support for the couple's son Aaron, who lived with Carl. The trial judge denied the claim, finding that Aaron was currently disabled, but that there was insufficient evidence that he was severely disabled before his majority.
The Court of Appeals agreed with the trial judge on this one. Arizona law is clear, even though there is room for interpretation. The disability must be "severe," and it must exist before the child reaches majority.
The evidence of disability produced for the trial court was really just a single letter from a doctor who had treated Aaron when he was 21. That letter said that his disability started when Aaron was 16, but it did not describe the severity of the disability during that time period.
There was also evidence that Aaron had gone to college, and lived on his own for at least some time. He had not applied for Social Security payments based on his alleged disability until after he turned 18. He lived with his father at the time of the divorce trial, but the appellate court noted that he was serving as his father's caregiver. He had a driver's license and took his father to appointments. He even drafted the pleadings in the divorce case for his father. Based on all the evidence before the trial court, the Court of Appeals agreed that no child support should be ordered. Gersten and Gersten v. Gersten, January 24, 2013.
Why are these divorce issues important to Arizona elder law attorneys? The characterization of life insurance and other less-common assets as community property or separate property can be important in estate planning as well as planning for long-term care needs. And we see a lot of adult children with disabilities -- it's important to understand what might be required of the parents of a disabled adult child when they contemplate divorce.