Arizona is a community property state, but what does that mean? Read on for everything you need to know about community property laws in AZ.
Is AZ a community property state? The short answer is: Yes, it is, making it one of nine community property states in the country.
But even among community property states, rules vary according to a given state’s law.
So how do community property and property division work in Arizona? Read on for everything you need to know about Arizona’s community property laws, including what counts as community property in Arizona and how it gets divided when a marriage ends.
State laws vary on the details, but generally, states are either community property states or equitable distribution states.
Community property states consider property and assets acquired during a marriage to be owned equally by both parties. In the event of a divorce, couples are required to split property and assets which were acquired during their marriage equally.
Meanwhile, equitable distribution states are states in which martial property is divided equitably, but not necessarily equally, between the couple in the event of a divorce. In equitable distribution states, the court determines a fair allocation of property based on a list of factors and guidelines which vary by state law.
Arizona is a community property state, along with eight other states in the U.S. including:
The distinction between community and separate property is crucial, as Arizona law does not require separate property to be divided equally among the two parties.
So, is all property owned by either spouse community property in Arizona? Not necessarily. Separate property is the property a spouse owns upon entering the marriage, plus certain exceptions to property acquired during the marriage.
Examples of separate property include:
And again, understanding the difference in community and separate property in AZ is critical for understanding how property will be divided.
As noted above, community property states are those that consider property acquired during a marriage to be community property, which is owned equally by both spouses. Thus, in a divorce, property is split equally among the couple.
Under Arizona’s law, all assets and debts a married couple acquires during their marriage belong equally to both spouses, with some limited exceptions such as inheritances or gifts directly to one spouse.
It is important to note that, unlike other community property states, Arizona does not require marital property to be divided equally in the event of a divorce. However, it must be fair, and property is usually divided approximately equally.
When determining which marital assets are community property, it is important to understand community funds.
Community funds are funds earned during a marriage by either spouse. While one may think their income is solely theirs, Arizona community property laws state that such income belongs to both spouses.
Under this assumption, any assets acquired by community funds during a marriage are considered community property. (For example, if a spouse purchased a car using community funds, the car would be community property in Arizona).
Examples of community property in Arizona can include:
Under Arizona property law, any debts acquired during the marriage are considered community debts, and community debts are also generally divided equally between the parties during a divorce.
Note that in some cases the court can decide on an unequal distribution of community debts, particularly in regards to student loans.
In the case of student loans, the courts in Arizona sometimes decide that it would not be fair for the other spouse to pay a portion of the debt if the spouse receiving the education will receive the majority of the benefits from it.
So, Arizona is a community property state, but is Arizona a 50/50 divorce state?
As noted above, unlike other community property states, Arizona community property law does not require community property to be divided exactly equally. between divorcing spouses. Instead, it must be divided equitably (aka fairly), which in most cases is approximately equal.
While the court determines what equates to an equitable division, separating spouses may also agree on their own terms regarding the allocation of assets.
In cases where it is difficult to divide property equally (or fairly), such as a house or a car, the court may order an equalization payment to make the division more equal.
An equalization payment is a sum of money equal to one-half of the difference in the value of the assets received by the other party.
Equalization payments are normally used when the division of assets is not as easy to equally divide. This can be the case for community property assets such as real estate or vehicles.
If a spouse mixes their separate property with community property, the separate property generally loses its status as separate.
This is called commingling and most commonly occurs when a spouse adds their income to a bank account they had before the marriage.
One complicated situation that can arise is if one spouse’s separate property increases in value during marriage in AZ, thereby raising the question of whether the increased value should be considered separate or community property.
Situations like this are evaluated on a case-by-case basis, but the key thing to know is that Arizona has moved away from its previous “all or nothing” rule, in which all of the increase was attributed either to the community or to the spouse’s separate property. Instead, courts may require an apportionment of the increase to both the community property and to the spouse individually, depending on community labor or factors inherent to the separate property led to the increase.
The presumption of community property in Arizona ends when one spouse files for divorce, legal separation, or annulment. In other words, assuming you and your spouse follow through and end your marriage, property acquired after a petition is filed but before the divorce is officially finalized is considered either spouse’s sole and separate property.
There are some exceptions to this rule, such as if a spouse receives bonus compensation after a divorce petition is filed, but that compensates the spouse for work done before the filing of the petition.
But again, the key reference point is when you or your spouse file for divorce, separation, or annulment. Community property in Arizona ends after such a petition is filed, subject to limited exceptions.
An inheritance by one spouse is not considered community property in Arizona.
However, in many cases, an inheritance becomes commingled with other community property assets. This can happen when the inheritance is deposited into the couple’s joint bank account.
The easiest way to overcome the presumption of community property is by entering a prenuptial or postnuptial agreement to avoid the issue altogether.
Arizona law allows spouses to change the character of their community or separate property before the marriage (i.e. through a prenuptial agreement) or after they have married (i.e. through a postnuptial agreement).
Another way to overcome the presumption of community property is by convincing the court that an asset was not intended to be community property. Overcoming the presumption of community property is difficult, though -- the spouse seeking to overcome the presumption must do so by "clear and convincing
To do this, one must meet the burden of proof through “clear and convincing evidence.”
Overcoming the presumption of community property is much easier to accomplish by reaching a prenuptial or postnuptial agreement with your spouse. It saves you time, money, and a court battle.
The main category of separate property in Arizona is property either spouse owned entering the marriage. Property acquired either before the marriage or after divorce is considered the separate property of that spouse.
In terms of property acquired during the marriage, things that are not considered community property in Arizona include gifts, inheritances, or anything subject to a valid prenuptial or postnuptial agreement.
No, Arizona is not a 50-50 divorce state. Although Arizona is a community property state, it does not require an exactly equal division of property. Property often is divided equally, but Arizona community property law simply requires a “fair” division.
So, is Arizona a community property state? Yes, but unlike some community property states, it does not require community property to be divided exactly equally. That said, in most cases, the division of property is approximately equal.
Under Arizona law, community debts are treated the same as community property and are therefore divided equally.
On the other hand, spouses retain their separate property following a divorce, including property they owned prior to the marriage and inheritances or separate gifts received while married. This makes understanding the difference in community and separate property in AZ crucial. If you have additional questions, consider speaking with an Arizona divorce lawyer today to discuss the specifics of your situation.
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