Community or Marital Liens in Separate Property

Consider the following hypothetical scenario. Husband owned a home before his marriage to wife. Husband and wife did not sign a pre-nuptial agreement, but husband keeps the house title in his sole name throughout the marriage. During the marriage, however, husband and wife used their during-marriage earnings to make the mortgage payments and improvements to the home. Later, they divorced. Is the wife entitled to any of the equity in the home? The answer is yes. Although various arguments can be made as to how to calculate the community or marital lien against husband’s sole and separate home, it is clear that an equitable lien, or claim for reimbursement by the marital community, exists if there is equity in the home. Wife would be entitled to one half of the community interest. The property itself remains the husband’s sole and separate property, subject to the equitable lien or claim for reimbursement. Recent case law in Arizona suggests that even when the separate property depreciates during the marriage but positive equity remains, the marital community is entitled to a lien in an amount equal to the reduction in principal indebtedness attributable to the community contribution. In other words, if the mortgage amount were $100,000 on the date of the marriage, and the parties paid the mortgage down to $90,000 during the marriage (a principal reduction of $10,000), the marital lien claim would be $10,000, and wife would be entitled to half, or $5,000. This would likely be the result if the value of the property declined during the marriage. If the value of the property increases during the marriage, the marital lien will likely include a share of the appreciation in addition to the principal paid down on the mortgage during the marriage.