Dividing Property in Divorce
This article outlines the process of dividing property in divorce in Arizona. Before we get started on this topic, remember that the parties are always free to agree on whether a particular asset is community property or separate property — this is a part of the negotiation process in every divorce.
1. Designation of Assets
Before resolving any issues concerning assets, everything must be characterized as either separate property or community property. The court will award each party their respective separate property. The community property will be divided fairly between the parties. Generally, an asset acquired during the marriage will likely be community property and, therefore, subject to division. There are a few exceptions, limited to instances where the asset was either owned prior to the marriage, or was acquired by gift or inheritance during the marriage. Once an asset is designated as community property, the parties must prepare to place a value on it.
2. Valuation of Assets
Some marital estates present a greater challenge when it comes to the division of assets. Traditional pension plans cannot be immediately divided. Executive pay packages are not clear-cut matters of salary, they may include deferred stock options and other contingent benefits. Even the property valuation of a small business can be quite complicated. The valuation of community assets will be established by agreement of the parties, by the testimony of the parties, or by the testimony of a qualified expert. The court has discretion to set valuation dates, and the court may attach different valuation dates to different assets. With assets that fluctuate in value quickly, the valuation date may be very important in the case.
3. Valuation in Complex Asset Cases
An otherwise ordinary divorce can become a complex one when a spouse tries to hide assets from the other spouse. In those types of cases, an accurate summation of the following assets and property is sought: financial accounts, bank accounts, retirement benefits, real estate, personal property, stocks and bonds, overseas assets, business revenues and credit reports. Whenever concealed assets are suspected, there are a number of things that can be done to discover them. Such as using a private investigator to help identify marital assets and debts and establish their true value. Another technique is the in-depth lifestyle audit, which involves comparing the spouse’s stated income to the amount that spouse actually spends. If there is a significant difference, and the spending seems exorbitant, then it may mean that certain assets have not been disclosed. More often than not, the longer a marriage lasted the more property the couple acquired, and the more complex the designation of assets and property division may be. The character of property is not always obvious and the valuation of the property must also be established. If yours is a high-asset divorce case, then it is very likely that some litigation may be involved to determine the character and value of certain assets. Qualified experts are used to establish asset valuation in complex cases.
A forensic accountant is used in many cases to prove the asset is actually separate property, or actually community property, if there is an allegation of marital waste, or to discover fraudulently concealed assets.
Business Appraiser or Business Valuator
If your community estate includes one or more business interests, the business will need to be valued and appraised by a business appraiser, or business valuator — the person is typically a forensic accountant. The business appraiser examines and analyzes all the business records, and may interview you, the other party, and the employees. The complexity of the valuation is determined in part by the type and nature of the business organization under examination. The business valuation is a time-intensive process and may take several months to complete.
Personal Property Appraiser
The services of appraisers are very useful when the personal property is unique, such as collectibles, artwork, antiques, jewelry, guns, automobiles, musical instruments, books, coins, stamps, and so on. The services of more than one appraiser may be necessary, depending upon the items to be appraised.
Real Estate Appraiser
When the parties cannot agree on their real property’s value, a real estate appraiser may be necessary to provide a formal appraisal and report. A real estate appraisal involves locating comparable properties in the area, noting the sale prices of the comparables, and extrapolating a value for the subject property.
Real Estate Agent
Real estate agents are often used to value real property, as they are very knowledgeable about the real estate market where the property is located. They know what properties are for sale in a given area, how long properties are taking to sell on the average, and how much properties have sold for in that area.
4. Dividing Your Assets
The court has broad discretion over the division of community property. The court may choose to distribute some assets in kind, so that Property-A is awarded to one spouse and Property-B is awarded to the other spouse. For example, if there are two collections of antique rifles, the court may award in kind one set to husband and one set to wife, even though the value of each set is different. The court may require that one party cash-out the other party. For example, husband is awarded the $30,000 painting, but he must pay wife $15,000 in cash for her 50% community share. The court may order an asset sold and the proceeds divided. For example, the parties’ residence may be sold, the debt paid off, and the proceeds split between them. The court may require a deferred distribution in which the property will be sold at a future time and the proceeds distributed thereafter. For example, one spouse remains in the marital home for another year, at which time the house will be sold and the proceeds distributed between them. The court may also reserve jurisdiction over property for later distribution. In that instance, the court enters the divorce decree, but reserves jurisdiction for a later valuation and division.
What to Expect When Dividing Property in Divorce
As we’ve discussed, assets and debts acquired during the marriage will be presumed to be community property and, therefore, subject to division. If you assert that an asset or debt established during the marriage is not community property — then it is your burden to prove this assertion. To take this position, you must prove by a clear and convincing burden of evidence, that the asset or debt is not community property because: 1) it was owned prior to the marriage; 2) it was a gift; 3) it was inherited; 4) it was not commingled with marital property; and 5) its designation as a separate asset did not change during the marriage. To take such a position, you’ll need a strategy of how to meet your burden of proof, and that is something best discussed in detail with your attorney.