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What is Community Property Law in Arizona and Why Does it Matter?

Arizona is a community property state and community property law controls the division of all assets of your marital estate.

Community property law sets forth a presumption that all real and personal property acquired during marriage is community property – meaning that the “property” is owned 50% by Husband and 50% by Wife.  “Property” is not limited to houses and cars, but also includes businesses, ownership interests, investments, wages from work, earnings, income, savings, retirement accounts, bonuses, dividends, IRA’s, pensions, real estate, raw land, brokerage accounts, boats, cars, art, furniture and any other property, whether it be real or personal – and of course, this also includes all debt created during the marriage. Unless the presumption of community property can be overcome, all property acquired during the marriage is to be divided equally upon divorce of the parties.

Division of Community PropertyThe equal division of community property may result in the actual, equal division of each and every divisible asset or the equal distribution of different assets of equal value to the husband and wife. In the event either method of property division results in one spouse receiving assets that are worth more than those received by the other, the spouse who received the assets of greater value will usually pay the other a sum of money that is equal to one-half of the difference in value of the assets received – this is called an equalization payment, and in the case of businesses and real estate, the equalization payment can be rather daunting.

For example, the acquisition of a new house during the marriage can create difficult community property questions upon divorce. What if there was a contribution of separate property? What if title is held in the name of one party and not the other? What if the mortgage is only held by one party because of credit reasons? There may also have been an inheritance or substantial gift from the family of one of the spouses during the marriage, whose proceeds were used to buy a property or pay down a mortgage.  Arizona case law will control in the vast majority of situations, but there are often difficult legal questions and various interpretations of the law.

Community vs. Sole and Separate Property

What is the difference between community property and sole and separate property?  Property acquired prior to marriage is separate and belongs to the spouse who acquired it. Property acquired during marriage is presumed to belong to the community estate except if acquired by inheritance or gift, or by exchange for other separate property. This definition leads to numerous issues that can be difficult to ascertain. For instance, when a spouse owns a business when marrying, it is separate at that time. But if the business grows during the marriage, what exactly is the value of the appreciation to the community? Often times, these community property issues lead to complex legal questions which require the assistance and expertise of competent legal counsel.

Generally, a spouse may waive his or her right to community property in a pre or post-nuptial agreement provided the agreement satisfies all applicable laws. A pre or post-nuptial waiver of community property may also be reversed during marriage or at the time of divorce, if spouses mutually agree. If a community property waiver is valid, a judge or commissioner will usually enforce it in divorce, dissolution or legal separation.

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