On the day you said “I do,” you didn’t just enter into a state sanctioned relationship with your partner, you pooled your resources together according to state law. In Arizona, there are generally two types of property ownership: community property and separate property and the distinction of the two will affect how it gets splits up in a divorce.
What is community property?
Each state has a unique definition of property. A divorce here will be different from one in New York, Florida or Colorado. In Arizona, the principle definition is that any property acquired during a marriage is shared. Your wages are equally your spouse’s and vice versa. The house you bought as a couple is owned 50-50 by both of you, as is the car and even the Cardinals season tickets. Community property works on anything of value, positive or negative. You spouse’s debt is 50 percent yours.
Separate property means anything that you owned before the marriage. That doesn’t entitle you to full value at divorce, though. For easy math, if you owned a house worth $100,000 before you were married, but it’s now worth $150,000 in appreciated value, that added $50,000 value is shared amongst the two of you, regardless of the name on the deed.
Distribution of community property?
If a court settles your divorce, property division will follow the community property concept. A retirement fund or bank savings account will be split evenly down the middle, where the cash can be divided without abstraction.
When it comes to community property like a house, business or car the line isn’t so easy to draw, of course. In these cases there are generally three models:
- One partner directly sells their share to the other.
- One partner uses a payment plan to purchase the appreciation of value over time.
- The partners work out a trade of comparable assets; for example, one keeps the house while the other keeps the business.
In any of these arrangements, it’s dependent on ownership prior to the marriage. Taking the house example above, the value of a sale or trade is based on the appreciation and not the total house value. One partner would keep the house to his or her name while paying or trading $25,000 to the ex.
Many divorcing couples choose to work out a settlement before it reaches the court. In private negotiations, any property distribution you choose can be worked out. However, if no pre-court settlement is reached, the state will base the division using community property rules. Exceptions can include gifts and inheritance and gifts, and a prenuptial agreement can override these rules.