Community Property

Here at the Law Office Of Louis Lombardo, PC we proudly represent clients in Phoenix, Chandler, Mesa, Gilbert, Queen Creek, Tempe & other cities throughout Arizona in community property & debt family law matters.

When couples divorce in Arizona, the court will divide all of their “community” or joint property, and affirm that each party keep his or her “separate” property. It is important to know the difference between the different types of property under the law to decide if a proposed division of property and debt in a divorce case is fair or not. “Separate” property is property that a person had before marriage, or which they received by gift or inheritance during the marriage. “Community” property is all of the property that you or your spouse acquire during the marriage that was not a gift to one spouse or the inheritance of one spouse. Debt is treated similarly to property. If the debt was incurred during the marriage, it typically is “community” debt. If one party had the debt before the marriage, it is “separate” debt.

The concept of two people becoming one partnership that is marriage carries over into Arizona law. Except for purchases of land or leases in excess of a year, one spouse’s actions have legal implications for the other spouse. If one spouse buys something with income from his or her job, it does not mean that spouse “owns” the item that he or she bought, or that he or she even has sole claim to the paycheck. In Arizona, regardless of which spouse acquires something, except for the limited exceptions mentioned above, both parties own it equally as their community property, or both parties are equally responsible for paying it as their community debt.

The law does not consider the parties’ respective incomes when deciding what is a fair way to divide the community property. If one party makes a small fraction of the income that the other does, the court will still split the community debt equally. The court does not split community debt in propertion to the parties’ incomes. It is all divided equally unless one party can prove the other engaged in seriously excessive or abnormal spending during the marriage, or that the other did something fraudulent or destructive to the property in order to deprive the first one of his or her share. If there is a significant difference in incomes and a lot of community debt to be paid, the paying of the debt should be dealt with by making a claim for spousal maintenance based on the need created by the significant load of community debt and lack of sufficient income to pay half of it.

The concept of community property may be simple to grasp but it can be complicated when trying to put in practice during a divorce case. Not every asset has to be all “community” or “separate” property, but it could have some of each associated with it. For example, a spouse may have a 401(k) account with a job they had before marriage, but which they continued to work at throughout the marriage. A portion of this retirement account is likely “separate” because it came into existence while the spouse was single, and a portion is “community” because it was acquired during the marriage. To complicate the matter, some of the interest and earnings on this 401(k) will be separate and some community property, depending on whether the additions came from the separate portion or the community portion. If the retirement account has a loan against it, that may be a separate or community debt to be dividid. As an added wrinkle, 401(k) accounts are governed by a federal law that requires the divorce court to enter a separate “Qualified Domestic Relations Order” so that the 401(k) can be divided without running afoul of the federal law and having to pay penalties and taxes because of the transfer of money.

Another example might be where one party has a bank account with money in it before the marriage, but during the marriage, they continue to use it. When a divorce occurs, some of the money in that bank account may be “separate” and some may be “community.” If this account was in existence for years and the amounts significant, it might take quite a bit of research trying to “trace” where all the money came from in the account and where it all went in order to differentiate the separate portion from the community portion. The effort could be worth it, however, because if it is impossible to trace the source of the funds to determine what is separate or community, the court’s typically find that the two types of property have been “commingled” beyond distinction and it will treat the whole account as community property and split it accordingly.

Yet another example might a “family business” that was actually started by one spouse before marriage but which grew during the marriage because of both spouse’s participation. Some of the business may be considered “separate” property, but because the growth was attributable to the efforts of the marital community, some of the business may be “community.” Again, the matter can become complicated quickly, and in many instances such as this, the parties may even hire a forensic accountant to help investigate and offer opinions on how to value and divided things.

As you can see, When the parties to a divorce case want to discuss settlement, simply trying to decide what property is subject to division as community property and what property should be given entirely to a spouse as his or her separate property can be a challenge all on its own.

If you or a loved one is going through a similar case, please give my office a call at 480-413-9300. We will give your case an initial evaluation and and advise you on the next steps to take.