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
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!