## Facts

- The parties married in 1974; the wife filed for dissolution in May 1994.
- At filing, the husband operated a sole-proprietor consulting business in information systems and electronic media, serving travel-industry clients.
- In August 1994, a corporation (Cyber Publishing, Inc.) was formed during the dissolution proceedings.
- The husband became Cyber’s president and a director and handled day-to-day management; his sister-in-law was listed as the sole shareholder after contributing $2,500 in start-up funds.
- No owner, officer, director, or employee made any further capital contributions to Cyber.
- Two of the husband’s prior consulting clients became Cyber’s major clients.
- By February 1995, the husband stopped operating the sole proprietorship and worked only for Cyber; his compensation increased significantly, including a bonus.
- The husband received no identified payment for intangible assets transferred from the sole proprietorship to Cyber (e.g., goodwill and client relationships).
- The wife challenged Cyber’s “true ownership” in the dissolution trial, seeking treatment of Cyber as a community asset.
- The trial court found the husband fraudulently conveyed his consulting business to Cyber and awarded the wife a 50% ownership interest in Cyber; the husband appealed that portion of the decree.

## Issues

1. Whether the evidence supported a finding that the husband fraudulently conveyed a community consulting business (including intangible assets) to a corporation and justified awarding the wife a one-half interest in that corporation.
2. Whether a spouse’s fiduciary duties regarding community property continue after a petition for dissolution is filed.

## Decision

- The Court of Appeals affirmed the dissolution judgment awarding the wife a 50% ownership interest in Cyber.
- The court upheld the finding that the husband fraudulently conveyed the consulting business, including community goodwill and client relationships, into Cyber without fair compensation to the community.
- The court held that the husband’s fiduciary duties concerning community assets continued after the dissolution petition was filed, and his post-petition transfers remained subject to judicial review and remedy.

## Legal Principles

- A business operated during marriage, including goodwill and client relationships generated during marriage, is community property subject to equitable division.
- A transfer of community business value to a closely related entity for inadequate consideration, particularly during dissolution proceedings, may be treated as a fraudulent conveyance of community property.
- Spouses owe ongoing duties of fair dealing in managing and disposing of community assets after a dissolution petition is filed; conduct violating that duty can support reallocation of interests to protect the community estate.
- A trial court may award an ownership interest in an entity receiving transferred community business value when necessary to restore or account for community property placed beyond reach through the transaction’s form.

## Conclusion

The appellate court affirmed the award giving the wife a 50% interest in the corporation because the husband shifted a community consulting business and its intangible value into a relative-owned company without adequate consideration during dissolution, breaching continuing duties owed to the community estate.


Gerow v. Covill, 192 Ariz. 9, 960 P.2d 55 (Ariz. Ct. App. 1998)