Arizona Community Property Laws & Dividing Assets
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Community Property Division in Arizona
Whether or not your divorce involves minor children, you will have to decide how your assets and debts should be divided upon divorce. Property division can be very complex in Arizona divorce cases, making it essential for you to seek help from a qualified divorce and property division attorney at Colburn Hintze Maletta.
To determine how to equally divide property and assets during a divorce, there are many elements that family law courts or mediators will look at.
In this article, we explain different categories of assets and the different Arizona laws that pertain to each asset.
Community Property vs. Separate Property
Under ARS 25-211, property that either spouse acquires during a marriage is presumed to be the Community Property of the couple. This means that in a divorce, both spouses will have a right to an “equitable” division of the property. In practice, “equitable” usually means equal. In contrast, property owned by either spouse prior to the marriage is generally considered sole and separate property and is not subject to division by the court.
There are certain exceptions to the general rule that property acquired during the marriage is community property, including::
- Property acquired using funds from the sole and separate property of one spouse;
- Property gifted to one spouse but not the other;
- Property inherited by one spouse but not the other;
- Property acquired by either spouse with sole and separate income or funds after the divorce petition is served and filed.
Community property is required to be divided during the divorce process. Under ARS 25-213, however, a spouse with separate property will retain it after the divorce is final, as such property is not considered part of the marital estate.
In most divorces, the court will equally divide the community property between the spouses. Property subject to division by the court includes:
- Real property (i.e. houses and land);
- Bank accounts and cash;
- Personal Property (i.e. clothing, appliances, furniture, jewelry, pets, etc…);
- Retirement/Invest Assets (i.e. 401(k)s, pensions, brokerage accounts, stocks, stock options, cryptocurrencies, etc…);
- Business Interests;
- Life Insurance Policies;
- Other assets.
Debts that occurred during a marriage are also considered to be community property in nature and will be divided between the spouses. When a divorce petition is filed, there will be a rebuttable presumption that all of the assets and debts accumulated during the marriage are part of the marital estate subject to an equitable (usually equal) division.
However, if a party can prove that one of the relevant exceptions applies such that the property is deemed one spouse’s sole and separate property, it will generally not be divided by the Court.
Separate Property – What it Means
Under ARS 25-213, separate property is not divided between the spouses and includes the types of assets previously described. However, if you commingle your separate property with the community property during your marriage, the commingled property might lose its separate nature and be considered part of the marital estate.
Property that has been commingled with marital assets to such an extent that it can no longer be traced to its source of origin may be considered community property.
For example, if you brought $50,000 into your marriage, deposited it in a joint account that was later mixed with community funds and used to purchase items for you to use as a couple, the court may end up treating the entire account as community property despite the initial $50,000 sole and separate contribution.
If you bring the separate property into your marriage, you should keep it separate. That means never mixing sole and separate funds with community funds. For example, you could place the $50,000 in a separate account that only has your name on it and never deposit community funds (e.g. income during the marriage) into the account. In that case, you should be able to easily prove to the court that the money in the account is sole and separate.
Property that is Owned in a Different State
If you or your spouse own real property in a different state, such as other houses or land, the courts in Arizona may not have in rem jurisdiction over it. This can cause some problems, especially if your spouse also resides in a different state than Arizona.
If you want the out-of-state property your spouse owns to be divided in your divorce, the court will have to establish in personam jurisdiction over your spouse. To establish personal jurisdiction, your spouse must either live in Arizona or have enough contacts with the state for the court to assert jurisdiction.
Your divorce attorney can establish the court’s personal jurisdiction over your spouse by having him or her served with the process (i.e. divorce petition and summons) when he or she visits Arizona. Your spouse can also consent to the court’s personal jurisdiction over him or her.
If the court establishes personal jurisdiction over your spouse, the court may be able to order your spouse to divide the out-of-state property that he or she owns as part of your divorce.
If the court cannot establish personal jurisdiction over your spouse, it will not be able to divide the property located in another state. However, this will instead be a divisible divorce in which a divorce decree can be issued, and a separate action to divide the out-of-state property is filed later.
How are Business Assets Divided in Divorce?
If you or your spouse opened a business during your marriage with community funds and labor, the business is considered community property subject to division by the court. If you or your spouse opened a business before your marriage, it may be considered the owning spouses’ sole and separate property.
If the business grew during the marriage as a result of community labor or effort, then the other spouse might have a lien claim to a portion of the increased equity during the marriage.
The court may also take into consideration any benefits received by the community from the separate business during the marriage.
If your business is subject to division in your divorce, you can negotiate with your spouse to buy out their interest or try to reach an agreement for your spouse to take a greater percentage of the other assets so that you can keep the business.
An in-depth business evaluation will likely be necessary to determine the value of your business.
Treatment of Inheritances and Trusts in Divorces
When one spouse receives an inheritance, he or she should generally be able to keep it free and clear of any claim of interest by the other spouse. However, the inheritance must not be commingled with other marital assets, or it could lose its separate nature.
If you have a trust, whether it will be considered community or separate property will depend on how it was created and funded. If you created a revocable trust while married and used community assets to fund it, it may be community property and subject to division.
If a third party created a trust and named you as its beneficiary, it may be separate property. Finally, if you created a trust and used your separate property to fund it, it should retain its separate nature.
The Effect of Prenuptial and Antenuptial Agreements
If you and your spouse signed a prenuptial or antenuptial agreement, it could control the division of your property in a divorce. A prenuptial agreement is an agreement entered into by a couple prior to divorce whereas an antenuptial, or postnuptial agreement, is one entered into during the marriage.
These types of agreements allow people to decide how their assets will be divided in the event of divorce. Prenuptial and antenuptial agreements can also be used to control whether a spouse might receive spousal maintenance.
To be enforced, a prenuptial or antenuptial agreement must be valid. In both cases, the agreement must be voluntarily signed by both you and your spouse in writing. The provisions included in the agreement must also be conscionable. Both of you should also have disclosed your assets and debts before signing the agreement.
A postnuptial agreement has additional requirements (e.g. fairness) due to the fiduciary duty between spouses. If a prenuptial or postnuptial agreement does not meet the legal requirements, it can be challenged.
Unmarried Couples and Property Division
Today, many people choose to live as couples without getting married. However, if your relationship ends, you will not have the same property division rights as married couples. You will be able to keep property that you have purchased yourself, and your significant other will be able to keep any property that he or she purchased. If you jointly purchased the property, you will both own it.
You will need records showing that you purchased the items you want to keep and can file a civil suit to recover property for which you have receipts.
Even if you are not married and do not plan to get married, it is still a good idea to draft a contract covering how you will divide your property if you live with your significant other and are not married.
How Debts are Handled in Divorces
While some people think that property division only involves dividing community assets, it also involves dividing the debts that were accumulated during the marriage. If you brought debts into your marriage, they will generally continue to be your sole obligation.
If both you and your spouse incurred debts during your marriage, the judge could order either one of you to repay specific debts even if you are not the one who took out the loan.
If your spouse is ordered to repay a debt that has your name on it, you should be aware that the creditor can still go after you if your spouse fails to pay. You should try to get your name off any joint debts before your divorce and separate your finances as much as possible.
Get Help With your Property Division from Colburn Hintze Maletta
Dividing property and debts during a divorce can be complicated. The family law attorneys at Colburn Hintze Maletta are experienced in handling complex and high net worth property division matters in divorce cases and can help you protect your interests and secure your fair share of the marital assets.
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