What Is Community Property?
Property Division Laws In An Arizona Divorce
Whether you’re thinking about getting married in Arizona, or divorced, it’s important that you understand how community property works. Arizona is a community property state, which means property division laws operate differently here than in states that use equitable division. If you have any additional questions, contact our Arizona family law attorneys for your free consultation.
Community Property Basics
In community property states, all property acquired during the marriage will be split equally between the spouses should they ever divorce. Property does not just include houses, cars, and bank accounts- intangible assets like retirement accounts, business interests, investments, and more must also be split. Debts incurred during the marriage by either spouse will also be split during property division in a community property state. That doesn’t mean that everything two spouses own is shared in a community property state. Property acquired before the marriage will be that spouse’s separate property. Property given to either spouse individually during the marriage by gift or inheritance will also be that spouse’s separate property. There are two ways that separate property can become community property: transmutation and commingling.
Transmutation Of Community Property
Most conversations about community property are held in the context of divorce, but it can actually sometimes be beneficial for some couples to transmute their separate property into community property. If one spouse has separate property that they wish to leave to their spouse in their will, transmutation is also an option. This will help your spouse avoid capital gains taxes.
When a piece of property is purchased, the purchase price is used as a basis for capital gains taxation. When the property is later sold, the capital gains basis is subtracted from the sales value to find the capital gain or capital loss. Arizona taxes capital gains as income, and other taxes may apply. If one spouse passes away, the other spouse can sell it and avoid capital gains taxes if the property has been transmuted. This can potentially save that spouse hundreds of thousands of dollars. It can also help avoid issues and delays during the probate process.
For a transmutation to effectively occur, the spouse transmuting the property must give an “express declaration” of their intentions. That spouse can use a clear and noticeable quit claim deed to transmute their separate property. There is also a presumption that unless one spouse receives consideration for transmuting property, it was conducted under undue influence. The party who seeks to claim the validity of the transmutation bears the burden of proving the lack of undue influence. This involves proving three things: transfer was made of that party’s own free will and voluntarily; the transmutation was made with full knowledge of all relevant surrounding facts; and the spouse who made the transmutation fully understood its effects.
Commingling Community Property In Arizona
Sometimes, separate property can become at least partially community property due to a process known as “commingling.” This occurs when community property funds are used to maintain, improve, pay off, or otherwise contribute to one spouse’s separate property. For example, one spouse puts the down payment on a house before marriage. That person then gets married, and continues to pay the monthly mortgage with their salary. Absent some formal agreement between the spouses, both of their incomes are community property during the marriage. Whatever portion of the mortgage balance that is paid off during the marriage, with community property funds, will be commingled into community property. The same could be said if one spouse contributes improvements such as remodeling or a pool to the home.
If you want to avoid commingling your separate property with community property during your marriage, you will need to take conscious and careful steps. Many spouses choose to keep their finances in clear and separate accounts during their marriages. While this sounds relatively simple, it can become complicated over the years to refrain from depositing community funds into separate accounts, and from using community property to improve and maintain that separate asset. If this happens, you will need to use forensic accountants and other financial professionals to separate your assets during a divorce. This can be just as expensive as it sounds.
Another way to avoid commingling separate and community property is by using a prenuptial or post-nuptial agreement. These agreements are made before and after the wedding, respectively. These agreements can specify how certain assets will be divided in divorce, or waive one spouse’s right to community property. The judge will analyze your prenuptial or post-nuptial agreement to confirm that it is valid should you divorce. These agreements may also be reversed during the marriage or upon divorce.
Community Property & Child Custody & Support
Besides property division, the other potential issues that will be addressed in a divorce are child custody, child support, and spousal maintenance. Community property has little to nothing to do with these issues. Child custody decisions are made with the child’s best interests as the top priority. Courts generally prefer for the child to have as close to equal time with each parent as possible, but can deviate from this preference for a variety of reasons. Child support will be based on a combination of each parent’s amount of parenting time and each parent’s income. Whether the court awards one spouse alimony (also known as spousal support and spousal maintenance) also depends on numerous factors. Some of these include the standard of living during the marriage, the length of the marriage, whether the spouse seeking support has the potential to earn income, the spouses’ ages, and more. A spouse who may be entitled to support may choose to accept additional community property shares in a divorce in lieu of continuing support payments. However, this type of compromise would need to be reached in an out-of-court settlement between the spouses.
Protect Yourself With a Skilled Divorce Attorney In Tucson, AZ
Because of Arizona’s community property laws, you could be at risk of significant financial loss should you divorce from your spouse. Even when spouses divorce on the best of terms, a divorce attorney may pressure an amicable spouse to aggressively pursue additional community property in a divorce. Or, a jaded spouse may use this as an opportunity to exact financial revenge. Either way, an experienced Arizona divorce attorney will make sure you aren’t taken advantage of during property division. From handling all communications and negotiations with opposing counsel, managing court deadlines, drafting all necessary legal documents and agreements, and whatever else your case requires.
Our Tucson family law attorneys are here to assist you. We also offer reasonable rates with payment plans designed to fit your budget. To get started with your free consultation, call (480)833-8000 or use our online form to schedule today.
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