Anyone considering a divorce in Arizona should understand the basics of how community property is defined. A.R.S. 25-211(A) provides “All property acquired by either husband or wife during the marriage is the community property of the husband and wife except for property that is (1) acquired by gift, devise, or descent; (2) acquired after service of a petition for dissolution of marriage, legal separation, or annulment if the petition results in a decree of dissolution of marriage, legal separation, or annulment.”
In more straightforward terms, everything you acquired (assets or debts) prior to the day of your marriage is separate property. Anything you acquired from the date of your marriage until the date you or your spouse was served with dissolution papers is community property. And any property you acquired after the date of service is separate property.
Some general examples of community property are as follows:
On the flip side, property you acquired before marriage and after the date of service is considered separate property. For example, if you lease an apartment after service of dissolution, that is your separate debt. Also, if you incur debt after service, that will be your separate debt. Additionally, if you purchased a home prior to the marriage, that will be your separate property.
These general rules may sound fairly clear, but property and debts can get confusing quickly. Exceptions and legal actions can modify the characterization of the property. For example, when you buy a house before the marriage and the couple decides to live in the house for 20 years, the house will be characterized (assuming no other legal actions occurred) to be separate property of the one spouse. However, the non-owning spouse may have a claim against the house for the use of community funds (wages) used to pay for the house (mortgage) over the years. Another area of confusion is retirement accounts, primarily because this is an area in which separate property and community property are likely combined. An experienced attorney can help with more complex areas and issues of community property are normally fact driven.
When you are planning for your divorce, it is very important that you identify all property and make a note of whether it is community or separate. Once you have done that, you should consult with an attorney to verify there are not any other legal issues that may have changed the characterization, or to affirm whether or not you may have a lien on the property as a result of the combination of separate and community funds involved in the property.
Blog post content by Castle Law LLC lawyer Jason Castle.
To sell, or not to sell…your home during a divorce.
If you are divorcing, and you share a home with your ex, there are many things to consider. For example, one party may want to stay in the home and not move or find a new place to live. This can only happen if:
Consider Option #1. Imagine the wife wants to stay in the marital home, but she does not make as much money as husband. If she is getting spousal support from the divorce, it could be added to her income to help (possibly) qualify her for a refinance independently and, therefore, remove husband from the mortgage loan. However, the husband is still entitled to his share of equity in the home, so the wife will still owe him his half of the home equity, just like it would be divided if the parties sold the property.
In this scenario, if the husband owes wife significant money for her portion of other community assets (retirement account, savings, etc.), he could use it to offset his equity in the home. To detail this example, if the wife is awarded $200,000 from husband's 401k and savings accounts, and the equity in the home just happens to be $400,00, Husband's portion of the equity in the home would be $200,000 – making the home equity exchange a wash (where neither party must pay the other out-of-pocket). But, if there aren't any other assets, how is the wife going to come up with $200,000 to buy out her soon-to-be-ex-husband’s equity, without selling the home??
Now Consider Option 2. Let’s say the wife does not qualify to refinance and take over the mortgage on her own, so the husband agrees to stay on the mortgage so she and the kids don't have to move. This leaves the husband jeopardizing his own ability to find a new residence. With his name still on the mortgage, he may not qualify to purchase another home. If his debt-to-income ratio is not capable of getting him approved for two large mortgages, it does not make sense for him to remain tied to the mortgage on the marital home.
These scenarios illustrate why, sometimes, the only workable option during a divorce is to sell the home. If you are in a situation like those described above, it’s never a bad idea to consult an experienced divorce lawyer, real estate agent, and/or financial planner to help you make decisions for your unique situation.
**Blog post content by J Castle Law attorney Kelly Kehm
Divorce is scary for everyone, whether you are the one filing for divorce or the one being told you are getting divorced. After you get over the initial impact of the decision or news you need to start taking action, which is a separate blog you should review (https://www.jcastlelaw.com/blog/archives/10- 2020).
Here are seven things you need to do immediately before filing for divorce to help protect yourself going forward:
1. Joint and Separate Bank Accounts: First, you should verify the funds in your joint and separate account(s). Not everyone will have a separate account; but, if you do, make sure you know what you have in the account. It is also important for you to know that even with it being a separate account, it is most likely still community funds in the account. If you do not have a separate account, I would open a new account and take one-half of the funds in the joint account to ensure you have some money available to you going forward.
Two notes to consider:
(1) Taking the funds will cause some drama and distrust, but it’s preferrable to have some distrust and be able to pay expenses than to be broke and unable to provide for yourself, or you and the children, while maintaining trust;
(2) These funds should be spent first to pay your expenses.
2. New Bank Account: You need to have a new, separate bank account opened. In Arizona, the ‘community’ terminates upon service of the Petition for Dissolution of Marriage. Therefore, you should wait until the date of service to put any money in the account. This is not the same account in the previous point, as those funds are community property, and your spouse is entitled to half the funds. This account will be for any money you earn after the date of service, as those funds are your separate funds, meaning your spouse is not entitled to these funds.
3. Direct Deposit: If you are employed, you need to contact your HR Department and have your direct deposit rerouted to the new, separate bank account you just created. Again, after service, your earnings are now separate property, and you need to keep these funds separate from any community funds to avoid comingling.
4. Credit Cards: If you do not have any credit cards, you need to apply and get a new credit card that only you can use. The divorce process is long, and you will want to have emergency access to money, as there are numerous expenses, like legal fees, that you likely have not anticipated. Hopefully you will never need to use the credit card, but it is far easier to get approved for a credit card before the divorce than it will be six months down the road, when you have only your income to qualify.
5. Retirement and Benefits: Prior to the divorce being filed, you can make changes to your beneficiaries. You should contact your HR Department and financial institution to change the beneficiary on your retirement accounts and any life insurance policy. Once the divorce is filed, the preliminary injunctions apply, which prevent you from making any changes until the divorce is finalized. In the unlikely event that you were to pass prior to the divorce (or after the divorce, but before you can make the changes), it is unlikely you want your retirement benefits or life insurance proceeds to be distributed to your ex-spouse.
6. Credit Report: I highly encourage my clients to run their credit report and verify any-and-all open accounts. If you have an account that is open, but not used, close the account immediately. If you have accounts that you were not aware of, investigate them, as it may be important to share them with your attorney. Finally, this information will also give you some insight into future decisions you will need to make, like refinancing a home, buying a home, or even applying for a rental.
7. Budget: Create a new budget based solely on your income and the expenses that you will have going forward. Knowing your budget will help you and your attorney plan for the early stages of the dissolution process. For example, you may not have the funds to move out of the marital residence, or you may be unable to qualify for a lease on a new apartment. Similarly, you may have to make alternative decisions regarding childcare or school tuition. Having a budget allows you to make informed decisions that you can actually fulfill, rather than putting yourself in a worse financial position.
Divorce is like a bomb exploding right in the middle of your life - it has rippling effects that will impact almost every area of your life. These 7 money suggestions will help you start to gain control and rebuild your life. There are many other decisions that you will need to make during the divorce process, and having an experienced attorney to advise you can be invaluable and can have long term, positive impact on the opportunities you will have once the divorce is over and you have started your new life.
We are here to help you with your family law matters!
Contact us at https://www.jcastlelaw.com/contact.html, or at firstname.lastname@example.org.
**Blog Posts Written by Castle Law Attorneys: Jason Castle, Kelly Kehm
In Arizona, a “high net worth” divorce is defined as a divorce that has financial assets over $1,000,0000. However, it is important to understand the $I million asset threshold alone does not necessarily mean it is complex. For example: Is a $1 million dollar investment that needs to be divided simply high asset…or complex? It depends. If that asset was accumulated during the course of a marriage, its division is likely straight-forward. However, if that same investment account is a combination of pre-marriage contributions and contributions during the marriage, the tracing of the funds to separate the individual contributions versus the community contributions can make that asset division complex. Similarly, if the funds are held in a trust, that complication can also make the division more complex. Finally, if the investment account poses serious potential tax implications requiring the expertise of a CPA or tax attorney, the situation has escalated from high-asset to complex.
High net worth cases may be the result of one party having received the majority of the funds from a trust or inheritance, which at first glance seems not complex. However, depending on how the funds were received and what were done with the funds (e.g. commingling or transmuting of funds), this type of matter may be highly complex and need serious investigation by potential use of experts to protect the assets. Such issues are often highly contested and lead to significant litigation that needs to be fully supported through discovery and proactive advocacy.
Business interests are another area that can create a high asset divorce, but they do not always mean complexity. Businesses do more often lead to complex litigation, but there are exceptions normally with smaller businesses. Some businesses are not very valuable and are easy for the parties to divide. Similarly, some businesses were started well before the marriage and therefore the community may only have limited claims to the interest in the business that may or may not lead to litigation. However, this is an area that is fraught with landmines that can completely change the course of the property division in a divorce. Just a couple of examples would include fair compensation. In Arizona, when a party owns the business as separate property, the non-owning spouse may have a claim based on not being fairly compensated for his or her labors during the marriage. Another issue occurs when the business has grown in value; expertise is required to ascertain whether the growth is attributed to the business naturally growing or the results of the owning spouse. In the event there are any disputes in the business value, the parties will most likely need to retain a business valuator to review the financials and investigate the history to determine a range of values. Business valuations have a number of subjective considerations that a skilled attorney can address that may have a tremendous impact on the community value, and ultimately, the amount a party has to pay to keep his or her business separate.
High income earning parties can also lead to high net worth cases. This may not be very complex if both parties are equally high earning, but if one spouse is earning significantly more than the other spouse, that leads to a number of issues related to child support and spousal maintenance which may fall into the complex category. It is important for a party, in this type of situation, to have an experienced and skilled attorney willing and able to advocate for the appropriate application of income to be used in arguing these type of situations. We recently saw a great example of this when Kim Kardashian was awarded $200,000 a month in child support in California. Now, given the amount of money that is being earned in that matter, $200,000 may be appropriate, but in Arizona this award would be hard to justify, and would require a skilled attorney to fight for a reasonable amount that meets the children’s needs without what our state views as ‘punishing’ the high earning parent.
It is my opinion that everyone seeking a divorce should consult with an attorney to at least understand his or her rights and the strengths and weaknesses of their respective position. Moreover, when you start dealing with more complex issues or division of higher valued assets or debts, it is even more important to seek the advice of a skilled divorce attorney and other relevant experts that can help protect assets and avoid costly and unfair liabilities as you move forward into the next chapter of your life.
Spousal & CHild SUPPORT on 2022 Taxes
With the end of the year coming soon, it is normal to consider taxes. One question I often get is whether or not spousal maintenance is tax deductible. The answer now is no.
If this sounds incorrect to you, that's because there were recent changes to the tax law. If you had a spousal maintenance award issued prior to January 1, 2019 your spousal maintenance payments are tax deductible to the payer and included as income to the receiving spouse. The 2017 Tax Cuts and Job Act eliminated the ability to deduct spousal maintenance payments and the tax applied to spousal maintenance payments received for any spousal maintenance award post January 1, 2019.
If you had a spousal maintenance order prior to December 31. 2018, and you modified the award after January 1. 2019, the tax treatment will remain deductible unless expressly included in the new agreement/order that the parties will no longer be able to claim the deduction.
Similarly, I often get asked whether child support is taxed or tax deductible. The answer to this is also no. The child support payments are neither taxed to the receiving parent nor tax deductible to the parent paying support. Child support is considered “tax neutral”. Essentially, the IRS treats child support as a direct expense paid for the child that should not be taxed in a manner divergent from how married parents are able to fund child expenses without tax penalty.
Divorce & Taxes
Know what divorce is filled with? Bad news. For all that divorcing people gain, like new relationships, peace of mind, emotional health, and new beginnings, divorces are still filled to the brim with loss. Divorced adults lose money. Homes. Friends. Family members. Their sense of self. Confidence. Stability. I could go on and on. Having worked with divorcing people for nearly 20 years, I can tell you that most people go on to live better, more fulfilling lives that bring them joy…but that exciting future doesn’t change the difficulty of living through the divorce.
But here’s the good news! Divorce often comes with wonderful tax breaks for people…and this is the time of year to reap those benefits. About time, right?!?!? Exactly. In July of 2021, Kiplinger put together a wonderful article designed to make people aware of the most overlooked tax breaks for newly-divorced people. Keep in mind, these are not ALL of the advantages…just the most overlooked. To make sure that you reap every tax benefit available to you, please do work with your tax preparer, accountant, and financial planner.
The tax breaks identified by Kiplinger include:
Co-Parenting? Here are some tips.
Co-parenting both during and after divorce can be tough stuff. But in divorces that do not have significant domestic violence and abuse, substance abuse, or dangerous mental illnesses, co-parenting is the way divorced parents operate. It may get easier to manage over time, but there are always times that present more challenges and conflict than others, and school breaks are definitely one of those times. Ultimately, the divorce changes when and how you can spend time with your children, often greatly reducing that time, and that enormous life change is difficult for loving, involved parents. To help process this, take a moment to read Co-parenting and Joint Custody Tips for Divorced Parents from Help Guide.
A good divorce decree should clearly spell out how holidays and breaks are supposed to work, but before that decree is in place, those details need to be worked through by the parents (often with assistance from their lawyers). Even when you have a good decree, life can happen that presents challenges to plans, and co-parents need to pivot. Since this is the month of spring break, I thought I’d share this great spring break survival guide from Parently. And since we’re still contending with COVID, here are some great spring break ideas that can be done at home or some creative outdoor activities kids might enjoy in Phoenix. These are also wonderful, local options for parents whose plans include ‘splitting’ the break.
Is co-parenting tough? You bet. Is your ex still a selfish idiot who relishes making your life difficult? Possibly. Ultimately, however, it offers health and stability to your kids during what, for them, has been an overwhelming change in their young lives. Kudos to you for keeping that thought front-and-center as you continue to try and work cooperatively with the other parent.
UGH...Valentine's Day. Right?
Valentine's Day during divorce can be...the worst. I won't sugar coat it for you. The divorce process is already stressful in so many ways. It is a time of loss that taxes your time, money, relationships, and emotions for months (and, sometimes years). This sustained assault on so many different fronts may not leave you with much tolerance for expressions of love everywhere. Overpriced flowers delivered to gushing office colleagues. Tacky stuffed animal baskets at busy intersection corners. Hearts. Just everywhere. Chocolate-covered strawberries. Prix Fixe menus that ruin your meal plans. You. Just. Can't. WAIT - except the chocolate-covered strawberries. You might be able to choke those down.
If Valentine’s Day might be an emotional trigger for you, don’t let it sneak up on you. Have a plan! Honestly, this is true with all important dates and holidays during and after your divorce. Having a plan makes the difference between reinventing traditions in an enjoyable way and feeling victimized and hurt by the loss. What type of day and/or evening could you plan that might be enjoyable for you this holiday? What could drown out the obnoxious cupid-fest all around you? If paying the San Antonio Zoo to name a cockroach or rat after your ex (see my February 2021 blog), or repurposing your engagement ring don’t perk you up, perhaps some of these ideas, along with the sassy tone of the article from Midlife Divorce Recovery might!
New Year; Moving Life Forward
“Most of the time, change is a good thing. Now, I think that’s what it’s all about. Embracing change. Being brave. Doing whatever you have to, so that everyone in your life can move forward with theirs.” ~ Ted Lasso
In September of 2021, The New York Times reported that divorces are on the rise. It’s unclear whether this is a direct result of the pandemic, a side effect of the courts being slowed by it, or a combination of both, but the surge is real in many cities and states. Add to that reality that January, in a non-pandemic year, is so notorious for presenting a significant increase in divorce filings that it has been nicknamed 'divorce month'. Although the pandemic has changed people’s lives and perceptions, the core reasons for divorce remain constant.
If you’re wondering why people seek divorce, Laura Wasser, the famous California attorney who represented Kim Kardashian, Ryan Reynolds, Maria Shriver, and others, has a robust article, including research, that answers that question: conflict and arguing, lack of commitment, infidelity, lack of intimacy, poor communication, domestic violence, irreconcilable moral views, lack of shared interests, substance addiction, absence of love, financial problems, marrying too young, and inequity of responsibilities in the relationship. The Power of Two dials in on some dangerous relationship situations that are signs a divorce is healthy when one or both partners refuses to change: emotional abuse, physical abuse, addiction, repeated cheating, mistreatment of children, and an untreated mental disorder.
Whatever the situation in a particular relationship, DivorceMag has some helpful advice about steps to take once someone decides that efforts to save the marriage have not worked. They suggest that people:
aWESOME, eASY LAST-mINUTE gIFT IDEAS
Know what makes the holidays tough? Supply chain problems. Amazon delivery theft. Parking snarls at large malls. Procrastination in general. If you’re like me, you’re trying to cross everyone off of your list to show your love and appreciation this holiday…but coming up short. During a year of personal upheaval, there’s extra pressure to show your biggest supporters how much you appreciate them.
If you’re in a pinch right now, I have ten low-stress, fast gift ideas for you that could help you overcome the overwhelm this holiday season! These are some of the favorite things in my own family, so I hope you can find a thing or two that would be just the right fit for someone in yours. I hope alleviating the shopping crunch will allow you to enjoy your most beloved humans this holiday season and enable you to be mindfully present in its most wonderful moments.
Jason Castle is a family lawyer who specializes in high-conflict cases. He's also a former prosecutor & social worker. Hear his latest divorce thoughts!