Important Concepts Pertaining to the Division of Assets During Divorce
Arizona is a community property state, which means anything you earned or bought during your marriage is considered to be owned by both spouses equally. Once you file for divorce this community property concept ends, so anything you earn or buy after the divorce petition has been filed is considered separate. Don’t go on a spending spree though, as the courts can see through that ploy and adjust division allocations accordingly.
This is a different approach than the one taken by states that have adopted equitable distribution laws, where a judge may decide on a different allocation of assets, such as a 60/40 split. In equitable distribution states, things such as earning potential, health and age, marriage duration and prenuptial agreements may play a role in how assets and debts ultimately get divided.
The other important concept to consider is separate property versus marital property. Separate property is anything earned or purchased prior to or after the marriage. Marital property is anything earned or purchased during the marriage and prior to filing for divorce.
In Arizona, all marital property and assets will be split down the middle from a valuation perspective. That often means rigorous negotiations must occur between spouses and their respective attorneys. For example, it may be difficult to separate retirement savings in a 401(k), but the value of the 401(k) may be similar to the equity you and your spouse have in the home you both jointly own. One potential solution in that scenario would be one spouse maintains ownership of the home and the other spouse becomes sole owner of the 401(k). This will prevent potential penalties from being incurred due to early withdrawal of money from the retirement savings account while also making it unnecessary to sell the home in order to liquidate and divide the equity. If the two aren’t entirely equal in value, one spouse may just be able to write a check for the difference.
A lot of negotiation may be required, even in a community property state such as Arizona, and not all assets have to be liquidated with the proceeds of the sales being split down the middle.
The negative of the community property standard is the division of debts, which can cause a lot of headaches in Arizona. Disputes regarding finances and money are some of the most common causes of divorce, and it’s not entirely uncommon to hear stories of one spouse accruing significant credit card or other types of debt behind their spouse’s back.
If your husband or wife racks up $20,000 in debt without your knowledge, maybe after spending the money on an extramarital affair, gambling or something else that ultimately contributed to the dissolution of your marriage, are you liable for half of that? In Arizona the answer would likely be yes, you would be on the hook for $10,000 of that debt.
There may be very narrow circumstances in which an Arizona judge may make an exception. If one spouse committed fraud, and it can be proven they did so without the other spouse having any knowledge whatsoever, a judge may be able to modify the agreement to make the offending spouse mostly or entirely liable for the debt, but these situations are rare.