Division of Property

Division of Property

Many families have accumulated significant assets during their marriage. Families own things such as a family business, the family home, retirement benefits, savings accounts, rental properties, automobiles, art collections and the like. Those all have to be divided when you get a divorce.

How Will the Court Divide My Property?

Arizona is what’s known as a “community property” state. To oversimplify, that means anything of value that was accumulated during the marriage through the efforts of either spouse is owned equally by both spouses. Usually it doesn’t matter whether one spouse or the other provided most of the blood sweat and tears to create the thing of value, the court is likely to treat it as equally owned to be equally divided.

That doesn’t mean the court will take a hatchet and cut everything in half. Often times the court will divide assets by giving one spouse certain assets such as the home and the other spouse an asset of equal value such as the retirement or savings. Often times the two main assets a family has are the family home and retirement benefits. These may not match up exactly so the court may order an “equalization payment” from an asset such as a retirement account or a bank account in order to ensure that each party has an amount of property that has an approximately equal value. Remember, some assets are tax-deferred such as retirement accounts and therefore worth less than a bank account since in order to liquidate the retirement asset, there will be a significant tax consequence. It is important that your lawyer be aware of these nuances and make adjustments for pretax assets such as a 401(k) or other retirement monies.

If the retirement account is to be divided, the court will usually issue a special type of order so that the spouse whose name is not on the account receives their share without having to pay tax on it so long as they are going to keep it in a tax-deferred status. These are most often called qualified domestic relations orders, or QDROs.

A more difficult situation arises when a spouse has what is known as a defined benefit plan. These are common in the military and larger companies. Defined-benefit pians involve the right to receive a certain amount of money after so many years of service and after reaching a certain age. The two main division options available to the couple are as follows: have the court issue an order giving the non-owner spouse a right to receive a percentage of the benefit when the other spouse retires or have the plan evaluated by an expert, who will come up with a “current cash value,” and award the non-owner spouse cash or others assets equal to that cash value, again taking into account tax consequences. Dividing retirement assets is a very complicated business almost always requiring the services of an attorney.

What If Our Only Asset Is Our Home, Do We Have To Sell It?

If the family owns a home together with significant equity, and there is no other asset to divide, then the answer is usually yes, the home will need to be sold and the proceeds split. There also is the possibility that one spouse can refinance the home and pull out enough money to pay the other spouse their one half share. Usually in this circumstance the refinance has to be in the name of one spouse, since the other spouse does not want to be liable for a home that they no longer have an interest in.

Is All the Property That We Own Community? What about Separate Property?

Depending on the circumstances, Arizona separate property law can be very simple or very complicated. If somebody owned an asset prior to the marriage, or receives a gift or inheritance during the marriage, and that asset has not been mixed in with community assets, then the court will reaffirm it as separate property of the owner. However, there is something known as a “community lien.” If the asset such as a home or a business has increased in value during the marriage, then the other spouse may have an interest in the separate property. There is also the doctrine of “co- mingling,” which, simply put, means that if separate property is blended in with community property such that it is not a distinct asset, it can convert the separate property to community property. It is not a bad idea, early on in the marriage, to consult a lawyer about separate property issues so that you can be sure you are not unintentionally turning that separate property into community property.

A Caution about Quitclaim Deeds or Disclaimer Deeds.

It is not uncommon for a family to purchase a home in the name of only one party. Usually this happens because one spouse has poor credit or because their income is so low that the real estate agent or title company has advised that it be put in the name of only one spouse. When this happens, the spouse whose name will not be on the property will be asked by the title company to sign a quit claim deed or a disclaimer deed. Arizona’s law is harsh in this regard. There is a strong presumption that the quit claim deed or disclaimer deed means just what it says, namely that the spouse is giving up all their interest in the home. This is rarely the intent and if you are contemplating signing a quit claim deed or disclaimer deed, it would be wise to consult a lawyer who will likely advise you to sign a written contract at the same time indicating that in spite of the quit claim deed or disclaimer deed, the parties own the house equally.

Dividing a Family Owned Business.

There is perhaps no other situation where it is more crucial to have legal representation than when dividing a business. Rarely can a business be cut in half and almost always, the business has to be valued and one spouse has to buy out the other spouse for one half of the value. Often times an expert or experts who are skilled at evaluating the market value of a business have to be involved. Tucson has several qualified experts which do this type of work and if you are working with experienced attorneys, they will often recommend a joint appraisal by an evaluator with a good reputation. Otherwise, if there are 2 appraisals that have significantly different values, litigation can be the result with an expensive battle of the dueling experts. This can be very costly but sometimes it is unavoidable. Different experts will sometimes come up with significantly different values for a business and it is not an exact science.

All We Have Is a Bunch of Debt, What Then?

In general, all of the debt that was acquired during the marriage will be split. The court may order that each spouse pays one half of each debt or they may give certain debts to one spouse and other debts to the other of approximately equal value. It is not uncommon to give one spouse more assets and more debt if they have the better ability to pay off the debt. Student loan debts incurred during the marriage are usually divided equally,

even though one spouse is going to walk away with the education and the other spouse will not receive any benefit from the student loans. This is especially true now when most student loan institutions require both spouses to sign the student loan contract.