Defining and Dividing Community Property in a Divorce
Community property is any property acquired by either spouse while married whether acquired jointly or separately. The distinction lies with the timing of the acquisition of the property and not necessarily that it was acquired with both names on the title or separate names on the title. For couples considering divorce, one of the most daunting aspects is the division of property. In order to help you feel confident as you begin your divorce process, I will discuss the process here and answer some of the most common questions that divorcing couples have.
Arizona is a community property state. This means that spouses generally share equal ownership of anything earned, purchased, acquired, or paid for during the marriage. It does not matter if only one spouse uses the property, or which spouse paid for the property, or whose name a title is under — if it was earned or acquired during the marriage, it probably belongs to both spouses equally. Only certain belongings are considered the separate property of one spouse.
In a divorce, community property is generally divided equitably — roughly, though not necessarily exactly, equal — between the spouses, while each spouse keeps his or her separate property.
The Divorce Guy has decades of experience preparing documents for divorces in Arizona. We can ensure that your documentation is prepared and filed correctly through our offices in Pima County and Maricopa County. We know what to ask and provide this service to hundreds of clients each year. Contact us today for help with your Arizona divorce process and paperwork.
Defining Community Property and Separate Property
Community property is defined in the Arizona Revised Statutes. It states, “all property acquired by either husband or wife during the marriage is the community property of the husband and wife except for property that is
- Acquired by gift, devise or descent.
- 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.
Separate property is defined as well. Arizona law states that a “spouse’s real and personal property that is owned by that spouse before marriage and that is acquired by that spouse during the marriage by gift, devise or descent, and the increase, rents, issues and profits of that property, is the separate property of that spouse.”
Examples of community property in Arizona could include the following, though it may depend on how and when they were acquired:
Bank accounts, whether held jointly or in each party’s separate names
Personal property including furniture, pets, and household appliances
Motor vehicles including cars, boats, motorcycles, mobile homes, and trailers
Life insurance policies
Credit card debts
A spouse’s separate property includes any gifts or inheritances given to that spouse alone, any personal injury awards received by that spouse, and the proceeds of a pension that was vested prior to the marriage. Also, anything purchased using a spouse’s separate funds is that spouse’s separate property. Generally, items acquired after the Petition for Dissolution of Marriage is served on the Respondent are also separate property.
If one spouse owns a business prior to the marriage, it will remain his or her separate property. However, if the business increases in value during the marriage or if both spouses work at the business, a portion of the business may be considered community property.
Items owned by one spouse prior to the marriage are generally considered separate property. However, if separate property is commingled (combined or mixed together) with community property during the marriage, it may become community property — entirely or in part — depending on the circumstances. Also, any property purchased with a combination of separate and community funds is considered partly community and partly separate property.
Are Retirement Benefits Considered Community Property?
This is an important topic. Let’s take some time to focus on how retirement benefits are handled in divorce proceedings.
There are different processes for dividing retirement benefits depending on the type of retirement plan. Lots of acronyms and abbreviations are used when dividing retirement benefits during the divorce process. I will go through some of the terminology and discuss various issues related to retirement plans and the divorce process.
Two Types of Pension Plans
The first is defined benefit plans. A defined benefit plan promises employees a specific benefit at retirement. The benefit might be a dollar amount or it may be based on a computation based on salary and years of service. These days, defined benefit plans represent about 10% of plans in which private sector employees are enrolled. This is down from about 60% in the 1980s. Industries with strong unions (such as the automobile and airline sectors) have tended to have the greater number of defined benefit plans.
The second type of plan is a defined contribution plan. The defined contribution plan does not promise a specific amount at retirement. Employers and employees may contribute to the plan. Those contributions are invested on behalf of the employee. Defined contribution plans rise and fall based on the performance of the investments made in the plan. There are other types of private pension plans, but these two are the most common. There are times when employers offer hybrid plans or both plans to employees.
When spouses divorce and one is enrolled in a private pension plan, the non-enrolled spouse can use a qualified domestic relations order (QDRO) to establish a legal right to retirement plan proceeds. Even though divorce proceedings take place in state court and are governed by state law, ERISA (Employee Retirement Income Security Act) sets in place the requirements of a QDRO. If the QDRO meets all of the requirements, the plan must honor the order and award retirement benefits to the former spouse.
A Qualified Domestic Relations Order
An acceptable domestic relations order does not require the board to provide any type, form or time of payment of severance, survivor or retirement benefits or any severance, survivor or retirement benefit option that is not provided under the Arizona Revised Statutes. In order for a DRO to be deemed acceptable, it must include:
– The name and last known mailing address of the member.
– The name and last known mailing address of each alternate payee covered by the order.
-The method of determining the amount of the member’s severance, survivor or retirement benefits to be paid by ASRS to each alternate payee covered by the order.
-The number of payments or period to which the order applies.
Government sponsored retirement plans such as the Federal Employees Retirement System (FERS) or the Arizona State Retirement System are handled using a different process. FERS was enacted in 1986 and replaced the Civil Service Retirement System. QDROs are specifically for private ERISA plans. For FERS plans, Civil Service Retirement System plans and Thrift Savings Plans, a Court Order Acceptable for Processing (COAP) is used to establish the legal right to retirement funds for the former spouse of an enrolled employee. We draft your Decree of Dissolution of Marriage with the specific language required by these plans so that a QDRO is not required.
Arizona State Retirement System
Another common retirement plan in Arizona public sector employees is the Arizona State Retirement System (ASRS). According to the ASRS handbook, “(i)f you are married during any time that you are an actively contributing member of the ASRS, your spouse may be entitled to a portion of your account or retirement benefit if you divorce. Because Arizona is a community property state, property acquired during a marriage belongs to the “community” of the marriage, not to an individual as that person’s separate property. All or a portion of your ASRS account or benefits may be a community property asset.”
Arizona law as it applies to the Arizona State Retirement System defines a domestic relations order as any judgment, decree, order or approval of a property settlement agreement entered in a court of competent jurisdiction that:
- Relates to marital property rights of a spouse or former spouse.
- Creates or recognizes in the spouse or former spouse the existence of an alternate payee’s right to severance, survivor or retirement benefits.
- Assigns the spouse or former spouse as alternate payee the right to receive all or part of the severance, survivor or retirement benefits payable to the member
A relative of the divorced member’s former spouse is defined as a person who is related to the divorced member’s former spouse by blood, adoption or affinity and who, after the divorce or annulment, is not related to the divorced member by blood, adoption or affinity.
The Petitioner and Respondent Request a Division of Property and Debt
In the Petition for Dissolution of Marriage, the Petitioner requests that the court order a division of property and debt consistent with the Petitioner’s statements in the pleading. The Petitioner’s statements include whether or not any community property was acquired during the marriage, whether either spouse has property acquired prior to the marriage or other types of separate property, whether any debts were incurred during the marriage, and whether either spouse has any separate debts.
If you and your spouse have already separated and divided your property, some counties’ Petition for Dissolution of Marriage forms allow the Petitioner to request that community property be divided based on the property in each party’s possession at the time the petition is served.
Otherwise, if there is community property, the Petitioner lists all property including its value and which spouse the Petitioner is requesting that it be awarded to. Similarly, if there is separate property, the Petitioner lists it and indicates which spouse should be considered its owner. For community and separate debts, the Petitioner provides a description and amount and indicates which spouse should be responsible for each. If the spouses have been separated, the Petitioner may also ask that each spouse be responsible for debts incurred since the separation.
In the Response to the divorce petition, the Respondent will either agree to the Petitioner’s proposed division of property or ask the court to order a different division based on the Respondent’s statements. The Respondent has the opportunity to list all community and separate property and debts and request how each should be allocated. The Respondent also provides a summary of what he or she is asking for on property and debts that is different from what the Petitioner asked for.
Can One Spouse Hide or Dispose of Community Property During the Divorce Process?
Per Arizona Law, ARS 25-315, “In all actions for dissolution of marriage, for legal separation or for annulment, the clerk of the court shall pursuant to order of the superior court issue a preliminary injunction.” This preliminary injunction constrains both parties to the action in various ways, including: “both parties are enjoined from transferring, encumbering, concealing, selling or otherwise disposing of any of the joint, common or community property of the parties except if related to the usual course of business, the necessities of life or court fees and reasonable attorney fees associated with an action filed under this article, without the written consent of the parties or the permission of the court.”
This means that neither spouse can hide, sell, or otherwise dispose of community property once the Petition for Dissolution of Marriage has been served on the Respondent without the written consent of the other spouse or the permission of the court. The only exceptions to this is “the usual course of business, the necessities of life or court fees and reasonable attorney fees” associated with the divorce process.
Determination of Property Division by the Court
If you and your spouse agree on the division of property, the court will ordinarily approve the division. If you and your spouse are not able to agree on the division of property, or any other terms of the divorce, your case will need to go to trial. At the trial, the judge will hear from both sides and then make a decision about an equitable division of property. The court may order that particular items be awarded to one spouse or the other, and the court may also order that contested property be sold and the proceeds divided between you and your spouse.
Prior to a trial, you will need to prepare paperwork listing, among other details, uncontested details of fact —such as items that you both agree are the separate property of one spouse or the other — as well as a detailed inventory of property and debts and a proposal for their distribution.
The Divorce Guy in Tucson offers professional legal document preparation services. We have decades of experience preparing documents for divorces in Arizona. By using our service you can avoid the expense of a high priced attorney so that you can focus your resources on helping your family make necessary transitions after your divorce. There is no need to worry about deadlines and properly completing the forms. We know what to ask and provide this service to hundreds of clients each year. Contact our office in Tucson today so that we can walk you through the divorce legal document preparation services we offer.