Property Owned by One Spouse Before Marriage In Arizona
In Arizona, property acquired by a spouse prior to marriage is that spouse's separate property and retains this character after the marriage. Drahos, 149 Ariz. at 249, 717 P.2d at 928.
However, when community funds are later used to make mortgage payments on the property, the community is entitled to some form of compensation and has an equitable lien against the property. Id.
In some early cases in Arizona, the community was entitled only to reimbursement for increased equity due to payments toward the principal. See, e.g., Hanrahan v. Sims, 20 Ariz. App. 313, 317, 512 P.2d 617, 621 (1973).
However, in Drahos, this court held that when community funds were used to decrease the principal owed on separate property, the community was entitled not only to reimbursement for the money applied to the principal, but also to a percentage share of any increase in the value of the property due to "the general trend of rising real estate values." Drahos, 149 Ariz. at 250, 717 P.2d at 929.
In Drahos v. Rens, 149 Ariz. 248, 250, 717 P.2d 927, 929 (App. 1985), the husband purchased the property the day before the marriage. Id. at 249, 717 P.2d at 928.
Therefore, the increase in value from the date of purchase to the date of dissolution was the same as the increase in value from the date of the marriage.
The court adapted a formula from In re Marriage of Marsden, 130 Cal. App. 3d 426, 181 Cal. Rptr. 910 (Cal. Ct. App. 1982). Drahos, 149 Ariz. at 250, 717 P.2d at 929.
In Drahos, the court held that the community property lien interest was determined "by adding the principal balance paid by the community to the product of the community property principal payments divided by the purchase price times the appreciation in value." Id.