The Consequences Of Signing A Disclaimer Deed

In Arizona, any assets purchased during the marriage are presumed to be community property. This presumption can be rebutted in certain instances. One such instance is when one spouse signs a disclaimer deed. This situation usually arises when the couple purchases a home, and one spouse has much better credit than the other spouse.

The couple may decide to put the mortgage and the deed solely in the name of the spouse with the higher credit rating. Typically, the other spouse will sign a disclaimer deed to acknowledge that the home is the sole and separate property of the purchasing spouse. What that spouse may not understand is that by signing the disclaimer deed he or she may be giving away any community interest in the home.

In the case of Bell-Kilbourn v. Bell-Kilbourn, the Arizona Court of Appeals found that a properly executed disclaimer deed rebuts the presumption that property acquired during the marriage is community property. In Bell Kilbourn, the married couple purchased a home and decided to apply for credit solely in the wife’s name to maximize their chances of getting a mortgage loan. The deed was placed solely in the wife’s name as her sole and separate property, and the husband executed a disclaimer deed renouncing his interest in the property. The property mortgage was then paid from community funds until the dissolution action was filed.

At trial, the judge decided that the real estate was community property. The judge stated that “it seems clear that it was not the intention of either party that Husband would be gifting his interest in the residence at closing to Wife.” However, the wife appealed the decision and the Court of Appeals overturned the trial court’s decision.

The Court of Appeals found that a disclaimer deed executed contemporaneously with the acquisition of the property must be given effect, unless the party who signed it can show fraud or mistake. The Court of Appeals concluded that the disclaimer deed was valid and that the home was the wife’s sole and separate property.

The Court of Appeals acknowledged that community funds were used to pay the mortgage on the home, and thus, the case was sent back to the trial court to determine the value of the community lien on the home.

In Bell-Kilbourn, no community funds were used to purchase the home. The down payment funds were advanced by the seller, and the seller was repaid when the loan (solely in the wife’s name) was funded. The Court’s decision may have been different if the down payment funds came from community property. Additional evidence may have been required to show “contemporaneous conduct indicating an intent” to convey a community property interest. This issue has not yet been addressed by the courts in Arizona.

This case is illustrative of the intersection between various types of law.  Platt & Westby offers assistance across many legal disciplines including commercial and residential real estate, trust and probate administration/litigation, contracts, bankruptcy, family law, business law, estate planning, elder law, collections, and more.  Contact us for a consultation (free in most cases).