One of the thorniest issues in divorce is the division of property. As Arizona is a community property state, each spouse is considered a co-owner of all of the property acquired during the marriage. As such, the assets must be equally divided.
For couples with few assets who have only been married a short time, this process can be short, if not sweet. But it can be a complex negotiation for those with long marriages and significant assets like the following:
— Rental property
— Brokerage accounts
— Pension plans and retirement accounts
— Stock options
— Deferred compensation
— Professional licenses and practices
Divorcing couples must understand that assets have both short- and long-term values that can affect the parties’ financial security. Assets can also have tax liabilities that must be factored in along with the cost basis and liquidity.
Sometimes one spouse has a separately-owned asset that may have become a community property asset over the course of the marriage. This can occur in a couple of different ways.
The most common way that an asset transitions from separate to community property is through commingling. For instance, if one spouse inherits money from a deceased relative, that is separate property. But if the spouse deposits all or a portion of the windfall into a joint account with the other spouse, the asset is considered community property.
The other way that an asset changes in status is if one spouse adds the other’s name on a title to formerly separately-owned real estate or other titled property. It’s important to keep separate property clearly delineated as same to avoid this occurrence.
There is another way that separately owned property can become at least partially community property. That happens when there is an increase in its value during the marriage, as the increase is considered community property. Also, there are two types of appreciation at play, active and passive. Determining if and when this appreciation occurred is a complex matter best left up to your family law attorney to hash out.
Source: Forbes, “Understanding How Assets Get Divided In Divorce,” Jeff Landers, accessed July 07, 2017