An Overview of AZ Community Property State Laws

Man and woman looking right. AZ community property state.

If you live in Arizona, it’s important to understand AZ community property state laws. In Arizona, this law is defined as providing each spouse with an equal ownership interest in all property acquired throughout the marriage. This includes assets such as real estate, retirement accounts, tangible personal property and more. (There are some exceptions that we’ll discuss below.) Understanding community property state laws can help you make important decisions about your finances and other legal matters.

Understanding AZ Community Property State Laws

Among other things, community property state laws in AZ are used to determine which assets each spouse is entitled to upon the death of the other. In general, spouses can elect to bequeath their share of jointly owned property and assets to whomever they choose. At the same time, rights of survivorship apply if not overruled or amended by a beneficiary designation or will. It’s important for couples living in Arizona to understand their state’s specific community property laws and how those apply in the event of death or divorce.

Dividing Property and Debts According to Arizona Laws

Under the AZ community property state laws, any assets and debts acquired during marriage are generally considered to be owned jointly by both parties. Property that’s owned solely by one party is not subject to division if the couple divorces. In a divorce situation, couples must go through negotiation or legal proceedings to decide how they want their assets and debts divided. The court may also appoint a mediator or arbitrator to help make decisions regarding equitable distribution of property.

The Exception

According to A.R.S. Section 25-211, any property “Acquired by gift, devise or descent” is the recipient’s sole and separate property. So, what does that phrase mean. A “gift” is pretty obvious. If your rich uncle gives you a Lamborghini, that is yours. You don’t need to split it in a later divorce. “Devise” means that you receive an inheritance in someone’s will. “Descent” also refers to an inheritance, but when there is no will.

Also, any property you receive after a petition for divorce is filed is your sole and separate property. The actual language of the statute refers to property “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.”

Finally, any property that you owned prior to the marriage is your sole and separate property. But be careful! Community property is “sticky.” If your spouse helps increase the value of an asset, he or she can get a community property interest.

I remember a situation in which a wife worked as a receptionist at her husband doctor’s office. She acquired a community property interest in her husband’s medical practice because she was helping to increase the value of the business.

The Differences Between Separate and Community Property

Separate property is any property or asset that was acquired before marriage, or that was inherited or gifted. It does not have to be divided during divorce proceedings. Community property, on the other hand, includes any assets or debts accumulated during the marriage and is divided between spouses based on equitable distribution laws in AZ. In some situations, a court may award alimony depending on what is fair and reasonable for both parties.

Can You Transfer Your House to a Trust as Your Separate Property?

Yes, you can transfer a house to a living trust as your “separate property. It doesn’t matter if it’s a joint trust or just for you.  The deed transferring the house to your trust needs to say it’s going to the trust “as [your name’s] sole and separate property.”

Be sure to get an attorney to make sure the documents are worded correctly. If you have a question, call us at 602-443-4888.

Can You Refinance the House And Keep It as Separate Property?

Yes. But in this case, your spouse will need to sign a waiver of community property interest. Be sure to ask your title company about this.

Arizona Spousal Rights That Protect Both Partners

The law provides many spousal rights to protect both parties in a marriage. These involve issues related to financial security, estate management, and medical care. In the state of AZ, either partner has the right to manage community property during their marriage or pursue certain legal actions independently, such as adopting children or changing their name. Additionally, neither partner may neglect the family’s financial responsibilities. They must each provide basic necessities for the other spouse or any minor children in the household.

Financial Benefits of Owning Property as a Couple in AZ

In AZ, couples that own property together are guaranteed certain financial benefits. A well-known advantage is that when one spouse dies, the surviving spouse gets a step up in basis on all community property. That can result in a big tax savings down the road.

Of course, another benefit is the right to an equitable division of all community property between both spouses in the event of a divorce or legal separation. Additionally, each partner has the right to control and manage their share of the community property during their marriage. However, they cannot do harm or lead to a waste of that property.

Have a Question About AZ Community Property State Laws?

After 20 years of practicing law here in Arizona, we know a thing or two about AZ community property state laws. Give us a call at 602-443-4888. We’re here to help.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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