## Facts

- Julia M. Hatcher (wife) and Marvin L. Hatcher (husband) married in 1980 and had four children.
- During marriage, husband enrolled in an employer-related voluntary accident and disability plan; premiums were automatically deducted from his wages.
- In 1984, husband lost his right hand and part of his right arm in a work-related accident.
- The plan paid husband a $120,000 lump sum and monthly structured payments for 54 months.
- The parties deposited proceeds into a joint account and used them to buy a family residence; they used continuing payments to service the remaining cost. Title was taken in joint tenancy with right of survivorship.
- The parties also used proceeds to build an apartment complex on land husband owned before marriage; both spouses signed financing documents, and title was held in joint tenancy with right of survivorship.
- In the dissolution action (filed 1991), wife asserted the disability benefits and the real property acquired with them were community property; husband claimed the benefits were his separate property and that the properties remained his separate property despite joint title.

## Issues

1. Whether disability-insurance proceeds paid under a policy acquired and maintained during marriage with wage deductions are community property, separate property, or partly each.
2. Whether real property acquired during marriage with those proceeds and titled in joint tenancy may be awarded entirely as one spouse’s separate property without accounting for any community component.

## Decision

- The court reversed the classification of all disability proceeds as husband’s separate property and held the proceeds were partly community and partly separate, requiring allocation based on what the benefits replaced.
- The court reversed the award of the residence and apartment complex to husband as wholly separate property because their characterization depended on the proper classification of the proceeds and the properties were acquired with mixed funds.
- The case was remanded for allocation of the proceeds and reallocation of the real property consistent with the community/separate interests.

## Legal Principles

- Disability and similar injury-related benefits are characterized by their purpose: amounts that replace earnings lost during marriage are community property; amounts compensating the injured spouse for separate losses (including post-dissolution earning impairment or personal, non-economic injury) are separate property.
- When a policy is acquired and maintained with community earnings, benefits substituting for community earnings during marriage cannot be treated as entirely separate property.
- Assets acquired with a mixture of community and separate funds generally require recognition of the community’s proportionate interest (through apportionment, lien, or comparable equitable allocation); an undivided award of the entire asset as separate property is improper when community funds contributed.
- Joint-tenancy title does not eliminate the need to determine and protect community and separate contributions when the acquisition funds are partly community.

## Conclusion

The court required a purpose-based allocation of disability-insurance proceeds purchased with wage deductions during marriage and directed the trial court on remand to apportion both the proceeds and the resulting real property acquisitions to account for the community’s share rather than awarding them entirely as one spouse’s separate property.


Hatcher v. Hatcher, 188 Ariz. 154, 933 P.2d 1222 (Ct. App. 1996)