Background
During Barbara and Tommy Sowards’ marriage, they sued a pacemaker manufacturer and obtained jury awards that included compensatory and punitive damages. They later settled all claims for $12 million. Under the written settlement agreement, the manufacturer was to make a $6.6 million cash payment, including $2,383,673 attributed to the spouses’ personal physical injuries, and fund $5.4 million in scheduled annuity payments to Tommy.
After the parties divorced, Barbara sought half of the annuity payments or, alternatively, spousal maintenance. Following an earlier appeal and an Arizona Supreme Court remand, the superior court found that 17.12% of the annuity payments represented Tommy’s separate personal-injury property and that the remaining 82.88% was community property. It awarded Barbara $528,069.92 for payments made between January 2019 and November 2023, awarded limited prejudgment interest and attorneys’ fees, and denied spousal maintenance. Tommy filed no answering brief in the ensuing appeal.
The Court’s Holding
The Court of Appeals held that Tommy failed to prove that any portion of the annuity payments was his separate property. The settlement allocated all $2,383,673 in personal physical-injury damages to the separate $6.6 million cash payment. Tommy’s receipt of less than his stated allocation resulted from payment of attorneys’ fees and costs, not from placing the unpaid difference into the annuity. Because the record did not allocate any annuity payment to personal injuries, the court reversed the property ruling and remanded for division of the annuity payments as community property.
The court also held that Barbara’s claim for the withheld payments was liquidated because the amount due from each payment could be calculated exactly. It directed the superior court to award prejudgment interest on Barbara’s entire unpaid share of each annuity payment from January 2019 through November 2023, using the statutory rate applicable when each payment was withheld. The court affirmed the denial of spousal maintenance because Barbara had agreed to waive that claim if she received a retroactive share of the annuity payments. It remanded the post-remand fee award for reconsideration but denied Barbara’s request for appellate attorneys’ fees.
Key Takeaways
- A spouse claiming that property acquired during marriage is separate property must overcome the community-property presumption by clear and convincing evidence.
- The settlement documents placed all personal-injury damages in the cash component, leaving no evidentiary basis for treating part of the annuity as separate property.
- Barbara was entitled to statutory prejudgment interest on each calculable payment withheld from her, measured from the date that payment was due.
Why It Matters
The decision underscores that courts must trace settlement proceeds according to the settlement’s actual allocations rather than infer that funds remaining after fees and costs were transferred into another payment component. A shortfall in the cash ultimately received does not, without supporting evidence, establish a separate-property interest in later structured payments.
The memorandum decision is not precedential under Arizona Supreme Court Rule 111(c), but it illustrates how Arizona courts analyze characterization and tracing of personal-injury settlements, as well as when unpaid marital-property distributions support prejudgment interest as a matter of right.