Community Property and Real Estate in Divorce

  1. Family Law
  2. Community Property and Real Estate in Divorce
community property
Family Law, Real Estate

Every Arizona divorce proceeding includes a division of property owned by either or both spouses, including real estate. As Arizona is a community property state, special rules govern the division of real estate in a divorce. Regardless of your situation, an Arizona family law attorney can advise you of your legal rights concerning any real estate that you or your spouse own and how your divorce may affect those rights.

Understanding Community Property

Arizona is one of the few community property states in the United States. Under A.R.S. §25-211, “all property acquired by either husband or wife during the marriage is the community property of the husband and wife.” The reference in this section to “all property” includes real property or real estate. The only exceptions are for property that a spouse acquires through a gift or inheritance or after filing a divorce, separation, or annulment petition. As a result, at least for the purposes of divorce, it does not matter whose name the asset is placed or titled in so long as one or both spouses acquired it during the marriage.

Typically, community property is divided equitably between the parties in a divorce. Absent a good reason, an equitable division is an equal division. However, community property and its division are not always as straightforward as they might seem.

When Community Property Becomes Separate Property

For instance, in certain circumstances, community property can become separate property – thus belonging to only one spouse. For example, if you sign a disclaimer deed that places a parcel of real property, such as a house or land, in your spouse’s name, then the court may recognize the real property as that spouse’s separate property in your divorce. However, you may be able to argue otherwise in some situations, depending on the facts surrounding the signing of the disclaimer.

Separate Real Estate and Community Liens

In other cases, property can be mixed in that it is partially community or partially separate property. For example, you might have had a retirement account that you started with your separate funds before marriage. However, you may have continued contributing community funds to the same retirement account during your marriage. As a result, your retirement account may contain both separate and community property.

Another version of mixed community and separate property occurs in the context of real estate. For instance, you might have a parcel of separate real estate you received as a gift or inheritance during your marriage. However, suppose that you and your spouse used community funds to pay mortgage payments and property taxes or make improvements to the real estate. In that case, although the real estate may remain your separate property, your spouse may have a claim to the equity in the real estate due to the community funds used to improve or increase its value.

When Community and Separate Property Are Commingled

Commingling happens when you mix separate funds with community funds. For instance, you might start with a savings account containing your separate funds. Then, you might add your spouse’s name to the account after marriage. While adding your spouse’s name does not alone convert the account to community property or result in commingled funds, adding community funds to the account and making expenditures and transfers from the account results in commingling.

In some cases, if not too much activity has occurred, a CPA may be able to trace and differentiate between the separate and community funds. However, if the commingling is more extensive and the funds are untraceable, the entire account will likely become community property.

On the other hand, real estate is treated differently when it comes to commingling. For example, if you own real estate before marriage and add your spouse’s name to the deed when you marry, the law is converted to community property.

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