The parties lived together for several years before they were married. During that time, Husband purchased a home where the parties lived and jointly contributed to its mortgage and expenses. Once married, the parties continued to reside in that home and used community funds to pay its mortgage.
When the parties divorced, the central issue was how Wife’s equitable interest in the home should be calculated. Because the home was purchased before the marriage, it was legally Husband’s separate property. However, because the parties used community funds during the marriage to pay the mortgage, that created an equitable interest for Wife called a community lien.
After the family court ordered the parties to subtract the mortgage balance from the appraised value of the home and divided the remaining equity equally, Husband filed a motion to amend the judgment. He argued that because the property appreciated before the marriage, the family court’s division improperly overvalued the community lien.
The family court granted the motion and applied the following formula:
C / [A+C] * [D-B]
A = Down payment made by Husband plus principal payments made before the marriage, plus the appraised value of the home as of the date of marriage minus the mortgage balance
B = Appraised value of the home as of the date of the marriage
C = Community contributions to principal
D = Value of the home at the date of dissolution
If you think that is convoluted, you are not alone. Wife appealed.
The Drahos formula
If you have researched Arizona law regarding community liens, you surely have heard of the “Drahos” formula. Its name refers to another case Drahos v. Rens where the Arizona Court of Appeals originally created the formula that is still used (albeit inconsistently) today. The Drahos formula looks like this:
C + [ (C/B) * A ]
C = Community contributions to principal
B = Purchase price of property
A = Appreciation during the marriage
Back to the Barnett case, the Court of Appeals agreed that the family court’s original division was inequitable. However, it rejected Husband’s proposed formula and reasoned that it would deprive the community of its interest related to principal contributions made during the marriage. Instead, the Court of Appeals slightly modified the Drahos formula to define “B” as the value of the home as of the date of marriage.
Conclusion
The parenthetical earlier stating that the Drahos formula is applied inconsistently wasn’t intended to throw shade at the judiciary. Community liens involve interests in legally separate property. These are complex issues. Family court judges are tasked with reaching fair outcomes and sometimes strict application of the formula does not achieve fairness. So, depending on the facts of your case, family courts may discretion to use different methods to calculate the community lien. In practice, this variability can be a difference of hundreds of thousands of dollars or more. That is why it is so important to take advantage of a free initial consultation with an experienced divorce attorney.