The distinction between sole and separate property and community property could have significant consequences in a divorce in Arizona. Arizona law defines community property as most property acquired by either spouse beginning the day they marry and ending the day one spouse serves the other spouse with a petition for dissolution of marriage. The significant exceptions are an inheritance to one spouse, a gift to one spouse, and pain and suffering damages from a personal injury claim. Arizona law defines sole and separate property as property acquired prior to the date of marriage, after the date of service in a divorce, gifts to one spouse, one spouse’s inheritance, and pain and suffering damages.
This sounds like a simple distinction, but sometimes the issue becomes more complicated. For example, if a spouse has money in a bank on the day of marriage, it is that spouse’s separate property. What if that spouse puts that money into a community property bank account after marriage? The law presumes co-mingled assets to be community property, but a spouse can trace the separate assets and, if that spouse can do so by clear and convincing evidence, the property will retain its sole and separate characterization.
Suppose a spouse owns a house prior to marriage, sells the house, and uses the proceeds to purchase a new house, taking title with the other spouse as community property. That spouse has made a gift to the marital community unless the other spouse has agreed in writing to the contrary. The law presumes property acquired during marriage to be community property.
Also, spouses can agree to change the characterization of property. They can agree to make sole and separate property into community property and vice versa.
Other issues as to the characterization of property include the growth of separate property due to community labor, the payment of debt secured by sole and separate property with community funds, and the vesting of property earned during the life of the marital community that perhaps compensates for future (post-divorce) employment (such as stock options).
Also, sole and separate property is not necessarily simply separate property for the family court to confirm to the spouse that owns it. It may influence several different issues. For example, sole and separate property that produces income will have an effect on the calculation of child support and will have an effect on spousal maintenance. It may also have an effect on the determination of an award of attorney’s fees to one spouse.
The characterization of sole and separate property and community property is an important issue in Arizona divorce and is not always as simple as it seems. If you are facing a divorce and have significant property, you should consult an experienced family law attorney.