In any divorce proceeding, the issue of how to divide marital assets and debts must be resolved, no matter what state’s law applies. By reading this overview on property division under Arizona’s community property laws, you’ll have a better understanding of how assets and debts are allocated in a divorce or legal separation.
In addition to Arizona, there are only eight other community property states (the others are California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). The community is the marriage, and community property is owned equally by both spouses.
In a divorce, there must be an equitable distribution of the couple’s marital property. In general, community property is divided equally between the spouses, as they both have an undivided half interest in the community. If not an exact 50/50 division, then community property must be divided fairly and equitably depending upon the circumstances.
The judge has considerable discretion on the division and distribution of community assets. And what is equitable is not always a precise dollar amount. The division depends on the kind and nature of the property and what is a fair distribution for the couple. Fairness allows for considerable flexibility when splitting up the couple’s marital property.
We need to discuss two basic property forms before we go any further: separate property and community property. Separate property is not subject to division in a divorce, although the parties can always agree otherwise. Community property, which is marital property, is subject to division in a divorce.
You now know that community property is subject to division during dissolution of marriage proceedings. But what is it? Simply stated, community property is marital property. Community property includes all assets, all property, accumulated during the marriage, regardless of whether the asset is in one spouse’s name or the other. When a spouse commingles, or mixes, his or her separate property (discussed below) in with marital property, it transmutes, or is transformed, into community property. Most couples will have some transmuted property to consider in their property division.
In general, an asset acquired during the marriage will likely be community property and subject to division between the spouses. There are a few exceptions, though. These exceptions are limited to instances where the asset was either owned prior to the marriage, or was acquired by gift or inheritance during the marriage.
An asset that is separate property is not a part of the marital estate and will not be subject to division in dissolution proceedings. In extremely simple terms, if an asset was acquired prior to the marriage, it may remain separate property at the time of a divorce. But this is not a hard and fast rule, by any means. The characterization of property depends in great part on how the asset was used during the marriage. How the asset was used may change the asset’s character from separate property to community property. Furthermore, a portion of the asset’s value may remain separate property, while a portion becomes community property. All of this depends on the facts of each individual case.
Generally speaking, an asset receives its characterization as separate or community property at the time of acquisition. That designation is not altered as a result of a subsequent marriage. Separate property, followed by marriage, is still separate property. When community property money is used to pay a mortgage or used to make improvements to the separate real property owned by one spouse, the non-owning spouse may be entitled to reimbursement for the community’s money spent on the other spouse’s separate property.
Marital Debts are Community Property
As with assets, community debts are also divided and distributed between the spouses in a dissolution of marriage proceeding. And as with assets, there are separate debts and community debts. Generally, if a debt was incurred prior to the marriage, it remains a separate debt and isn’t a shared obligation. That is also the case with debts incurred by one spouse after the divorce action is initiated, although there are exceptions. For the most part, any debts that arose during the marriage will be allocated as community debts and, therefore, will be divided equitably between the parties in the divorce.
Agreements on Property
The parties are always free to agree on the designation of an asset as the separate property of one spouse or the community property of both spouses — this is a part of the negotiation of a divorce.