Community Property Laws in a Divorce
Arizona couples who divorce will have their assets and debts divided as a part of their dissolution proceedings. Depending on the length of a marriage and the assets and debts that have been accumulated by the couple, the division of property may be very complex. It is important for people to understand the community property laws in Arizona so that they can have a better idea of what might happen in their divorce cases. The experienced legal team at the Cantor Law Group can advise their clients on property division and how they might protect their rights.
Watch this video of David Cantor explain Arizona as a Community Property State:
How is Property Divided During a Divorce?
Under ARS 25-211, all of the property that is acquired during a marriage is considered to be the community property of the spouses. This is important because it tells how the property of a couple may be handled in a divorce. Community property is divisible between the spouses when they get divorced. It does not matter if only one spouse purchased an asset during the marriage. After it is purchased, the asset will be considered to be the community property of both spouses, meaning that each spouse has a 50% interest in it.
In a divorce, all of the community property will be divided equitably between the spouses. The community property includes more than cars and real estate. It also encompasses all assets that have been accumulated during the marriage, including the following:
- Real estate
- Retirement accounts
- Taxable investment accounts
- Income, wages, and earnings
- Personal property
- Art and collectibles
When a divorce petition is filed, a rebuttable presumption that all of the property and debts acquired during the marriage is community property will be created. Unless a spouse is able to prove that an asset or debt should be considered to be separate property, it will be divided in the property division portion of the divorce case.
How is Property Purchased Before a Marriage Divided in a Divorce?
In general, property that is purchased before a marriage by either spouse is considered to be his or her separate property. This means that it will not be considered to be the community property of the marital estate and will not be subject to division in a divorce. However, an important caveat to note is that if a spouse commingles his or her separate property with community property after a marriage, it may lose its exclusion as separate property.
For example, if a spouse purchased stocks prior to his or her marriage and later sells them after he or she is married and deposits the proceeds of the sale into a joint account, the value of the stocks may be considered to be commingled and a part of the community property. Property that can lose its separate nature is an asset that has become so commingled with the community property that it is difficult to trace it back to its original source.
If a spouse uses his or her separate money to purchase an item after the marriage, the item that was purchased will not necessarily be considered to be a part of the marital estate. In Porter v. Porter, 195 P.2d 132 (Ariz. 1948), the Arizona Supreme Court found that a house that was purchased by the husband during his marriage with separate money that he had before the marriage was his separate property instead of a part of the marital estate. In that case, the husband had kept his money with the company in which he had an ownership interest separate from a joint account that he had opened to support the needs of his family. The accountants at the company kept detailed records so that the money for the purchase of the house could clearly be traced back to its origin from his separate funds.
This case demonstrates the importance of keeping separate property separate during the marriage. If you are able to clearly trace an asset back to its origins with your separate funds from before you were married, it should preserve its separate nature and avoid division in a divorce. You can help to prove that your property is separate by keeping careful records. You might want to keep your separate money in a separate bank account and not deposit it into a joint account that you share with your husband and wife. You also should avoid adding your spouse’s name to property that you owned before you were married so that your spouse can’t claim that you intended to transform it into community property.
What Happens to Property Outside of Arizona During a Divorce?
Arizona courts have jurisdiction over all of the property that is located in the state. This is called in rem jurisdiction. By contrast, Arizona does not have in rem jurisdiction over the property that is located in another state. Arizona may circumvent the issue of not having in rem jurisdiction over out-of-state property by ordering a person to dispose of the out-of-state property in a divorce if the state has in personam jurisdictionover that person. In personam jurisdiction is the jurisdiction a court has over a person who resides in Arizona or who has enough minimum contacts with Arizona for the court to have jurisdiction over him or her.
The court may also gain personal jurisdiction over a spouse who lives in another state if he or she is personally served while he or she is visiting Arizona. Finally, the court may gain personal jurisdiction over an out-of-state spouse if the spouse consents to the court having personal jurisdiction over him or her.
Jurisdictional issues involving in rem and in personam jurisdiction are more common today with the increased mobility of people. People tend to relocate much more frequently, and they may purchase property in a variety of different states. While Arizona will not have in rem jurisdiction over the property that is located in other states, it can still issue orders to a person for how that property should be divided in the divorce as long as the state has personal jurisdiction over him or her.
If one spouse lives outside of Arizona and the court is unable to obtain personal jurisdiction over him or her, the Arizona court may not order him or her to divide the out-of-state property. Instead, what is termed as a divisible divorce would occur. The idea of a divisible divorce first arose in Estin v. Estin, 334 U.S. 541 (1948). The Arizona court could grant a divorce decree to the spouse who filed for divorce in the state. That spouse would later have to initiate a separate action in the state where the property was located or where the out-of-state spouse was located to divide the property, which could be very expensive and time-consuming.
Proceeds from an Inheritance or Trust Fund in a Divorce
If you have received an inheritance in your name only whether it was before you were married or after you were married, it is considered to be your separate property. If your spouse was also named in the inheritance, it will be community property. To keep your inheritance from losing its separate nature, make sure not to commingle the funds with your community funds as previously described.
Trusts are a little more complicated. Whether your trust will be considered to be your separate property or the community property of you and your spouse will depend on a few things, including who created the trust and where the assets in the trust came from. If you created a revocable trust during your marriage using community assets, the trust will be a part of your marital estate and will be subject to division. If you created a trust and funded it with your own separate property, it will remain as your separate property and will not be a part of the marital estate. If you are the beneficiary of a third-party trust, it will likewise remain your separate property.
How Are Business Assets Divided?
Businesses that are started after marriages are considered to be community property just like other types of assets. This means that they are subject to division in divorce cases. A business that is started before marriage will generally be considered to be only the separate property of the spouse who opened it, including any increases in value that have happened since the marriage. However, if the other spouse has made significant contributions during the marriage to the increase in value, he or she may be entitled to a portion of the increased value but not to the business itself.
If the spouses co-own a business, one spouse might try buying out the other spouse’s interest in it. It is also possible for a spouse to agree to take less of other assets in order to keep the business. In many cases, businesses that are divided as community property are unable to survive. When there is a business, a business valuation will need to be completed. This allows the spouses to understand the value of the business for purposes of the property division.
What if We’re Not Married but Have Lived Together for Years?
Many couples are choosing to live together without getting married. When you do this, you will not have the same rights to property division as you would if you had been married. Unless you have a written contract that clearly asserts joint ownership of the assets that you have accumulated during your relationship, you will be entitled to the property that you actually purchased. The property that your partner has purchased will be his or her own property. Any asset that you purchased together will be considered to belong to both of you.
You will not be able to ask the family court to divide your property if you were not married. However, if you have records showing that certain items were purchased by you alone, you can pursue a civil suit to recover them if you need to do so. If you choose to live with your partner without getting married, it may be a good idea for you to draw up a contract in which you decide how your property will be handled in the event of a breakup.
How Does a Prenuptial or Postnuptial Agreement Affect Property Division?
People are allowed to decide how they will divide their property in a divorce in a valid prenuptial or postnuptial agreement. These agreements allow people to determine what will be considered to be community property and separate property. They may also be used to determine whether a spouse may or may not be able to pursue spousal maintenance.
An antenuptial or postnuptial agreement will only be enforceable if it is deemed to be valid by the court. Under A.R.S. 25-202, a prenuptial agreement will be considered to be valid if it is in writing and is signed by both parties. However, it will not be considered to be valid if any of the following apply:
- The spouse did not sign it voluntarily;
- The agreement is unconscionable; or
- The other party did not fairly disclose his or her money, assets, and debts, and the spouse did not waive his or her right to further disclosure.
If there is an prenuptial agreement, it may be challenged in a divorce if it does not meet the requirements of Arizona law.
What Happens to my Credit and Debt After a Divorce?
Property division in a divorce also includes a division of the community debts, which are the debts that either you or your spouse has accumulated during your marriage. Debts that either one of you brought into the marriage will be considered to be your separate responsibilities and will not be divided. For example, if your spouse had a student loan debt of $25,000 when you got married, the student loan debt will remain his or her sole responsibility after your divorce.
The court can issue orders to spouses to be responsible for certain debts. However, if your name is on a debt that your spouse is ordered to pay, your credit score may be negatively impacted if your ex-spouse pays late or fails to pay the debt. It is best for you to try to pay off any debts that you jointly owe before your divorce and to separate your finances as much as possible so that your credit can be protected.
Get Help from the Divorce Attorneys at the Cantor Law Group
Property division in a divorce in Arizona can be complicated. If you have been married for a lengthy period of time and have accumulated substantial assets, it can be even more complex. Contact the Cantor Law Group to schedule a free consultation about how your rights by calling 602.254.8880.