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In Arizona, community property is “equitably” divided. But the spouses can decide whatever combination of assets works for your two lives. You don’t have to follow Arizona law to a T but you absolutely will be better off knowing what it says. Arizona law sets the starting point so you know what the law entitles you to have but you can decide the details. A court may not know which assets matter most to each of you. It can divide property equitably without dividing every asset in half, including by awarding different assets to each spouse. Mediation gives the two of you more control over the combination you choose.
Start by Sorting Community Property From Sole and Separate Property
Every asset and every debt falls into one of two groups, and sorting them is the first step in any fair division. Community property is everything either of you acquired during the marriage, whichever name is on the account or the title, under A.R.S. § 25-211(A). Separate property is what each of you owned before the marriage and what either of you received during the marriage as a gift or an inheritance, under A.R.S. § 25-213(A). Property acquired after the divorce petition is served is also separate, as long as the case ends in a decree, under A.R.S. § 25-213(B). Your separate property stays yours. The divorce only divides the community property but it is still important to know what each spouse considers sole and separate even though only the community property is divided.
Community property commonly includes the following:
- The house and any other real estate bought during the marriage, including rental property, vacation property and land. It does not matter whose name is on the deed.
- Checking, savings and money market accounts.
- Brokerage accounts, stocks, bonds, mutual funds and cryptocurrency.
- The portion of each 401(k), 403(b), 457 plan, IRA, pension and deferred compensation plan earned during the marriage.
- Stock options, restricted stock units and bonuses earned during the marriage, even if they pay out later.
- Vehicles, boats, RVs, trailers and motorcycles.
- Furniture, art, jewelry, collections, firearms, tools and household goods.
- Frequent flyer miles, credit card points and timeshares.
- Tax refunds for the years of the marriage.
Social Security benefits are not divided as property. Divorce does not affect anyone’s social security.
Sole and Separate Property Needs To Be Disclosed
Separate property keeps its character only if it has clearly been kept sole and separate. If you deposited an inheritance into a joint account and spent from that account for years or paid part of the house down payment with money you had before the marriage, the separate portion becomes hard to identify. You can try and trace it so you don’t have to divide it. Use bank statements from the time of the deposit, closing documents, gift letters, probate papers, and account statements from before the marriage to make the argument.
Divided “Equitably” Not Equally
Arizona courts start from an equitable division of the community property. Neither of you has to take half of every account, half of every vehicle and half of the furniture. You can divide the total value in whatever way works for both of you. These are common trades:
- One spouse keeps the house, and the other keeps a larger share of the retirement accounts.
- One spouse keeps the business, and the other keeps the brokerage account and the equity in the house.
- One spouse takes more of the assets and also takes more of the debt.
- One spouse keeps the newer vehicle, and the other receives a cash equalization payment.
- One spouse receives more property up front in exchange for less spousal maintenance or the reverse.
Before you agree on a trade, compare the assets on the same footing. A dollar of home equity, a dollar in a 401(k) and a dollar in a savings account are not worth the same amount. Retirement money is taxed when it is withdrawn and early withdrawals carry penalties. Home equity becomes cash only after a sale or a refinance and a sale carries commissions and closing costs. A mediator who knows Arizona family law will understand these details and help guide you through all of this so what you meant to negotiate is what you actually end up with. You want the trade you make to be the trade you intended.
Debts Are Also Community
Debts incurred during the marriage are generally presumed to be community debts, even if only one spouse is named on the account. Community debts are allocated as part of an equitable division, which does not always mean splitting each debt equally. That includes mortgages, home equity lines, car loans, credit cards, personal loans, medical bills, business debts, and taxes owed for years you filed jointly. Student loans can also be considered community depending on when they were taken out and what they paid for.
Your debt agreements as part of any settlement do not bind the lender. If your spouse agrees to pay a joint credit card and does not pay it, the credit card company can still collect from you. You want to prevent this mess. A well-drafted detailed agreement handles this by closing joint accounts, setting deadlines to refinance joint loans into one name and giving you a clear way to recover what you pay on a debt assigned to your spouse.
The Numbers Have to Be Disclosed
A fair division depends on accurate values. Each of you should have current statements for every account, a payoff statement for every loan, and a realistic value for the house, the vehicles and any business. For the house, that can be an appraisal or a broker’s opinion of value that you both accept. For a business, it may take a valuation expert, or the two of you may agree on a value using the business’s tax returns and financial statements. Agree on a valuation date for each account as well because balances move every day.
If one spouse spent community money on things that did not benefit the marriage, such as gambling, gifts to a romantic partner, or large unexplained withdrawals, that can be addressed. Under A.R.S. § 25-318(C), a court can take into account excessive or abnormal spending and the concealment or fraudulent disposition of community property. In mediation, the two of you can adjust the division to account for it.
If your spouse will not provide statements, the division is not ready to be made. Once a case is filed, Arizona’s mandatory disclosure requirements can be used to obtain the records and you can return to mediation when you have them.
Write It So You Are Protected
Property agreements fail most often in the details that were left out. The written agreement should name every account by institution and the last four digits of the account number. It should say who keeps each vehicle and who pays its loan, when the house will be sold or refinanced, and what happens if the sale or refinance does not happen by that date. Who pays if the AC goes out before the house is sold? Who pays for the pool upkeep while it is on the market? It should also detail the person you choose to draft the order that divides each retirement plan and who pays for it. Once any such agreement is signed by both of you it is binding under Arizona Rule of Family Law Procedure 69(a)(1).
Good mediators will draft a Memorandum of Understanding or a Rule 69 agreement at the end of mediation. At a later date, the decree, the property settlement agreement and the parenting plans are drafted, reviewed, signed and filed to finish your divorce.
Talk to Tali
If you have questions about mediation, schedule a consultation at bestlawaz.com/talk-to-tali. Tali handles every new client consultation.
