DIVIDING PROPERTY IN A DIVORCE – HOW THE ARIZONA FAMILY COURT DOES IT

One of the first and most vital steps in a divorce is figuring out the division of property.  Naturally, people want to know how Arizona courts will divide their property.  Below are some of the most commonly asked questions that I hear from clients:
How does Arizona divide property in a divorce?
All states are either community property states or equitable division states.  Arizona is one of nine community property states.  Community Property is based on the theory that a married couple is a team, and the role that each spouse plays benefits the team.  One may be the breadwinner, the other might care for the children; or they may both work and share the childcare responsibilities – but it’s a team effort.  Therefore, the law provides that income earned by either party, and anything purchased or accumulated with that income during the marriage, is considered to be community property, belonging to both parties 50/50.  If the parties later divorce, then the community property will be divided substantially equally.
How does the court determine what is Community Property versus Separate Property?
In a divorce, the court must determine what constitutes “Separate Property,”  and what constitutes “Community Property.”
Arizona Revised Statutes § 25-211 defines Community Property as all property acquired during marriage except for property acquired by gift, devise, or descent (inheritance).  This means that salary, bonuses, and commissions earned by each spouse through employment are community property.  Employment income placed in a bank account (regardless of the name on the account) is generally considered to be community property.  Stocks, bonds, and brokerage accounts accumulated during the marriage are community property. Houses and cars purchased with marital funds constitute community property (unless the other spouse signs a deed disclaiming his or her community property interest).  Furniture and personal items purchased with community monies will be considered community property, unless there is evidence that it was a gift. And monies contributed to pensions, 401k,’s IRA’s, and other retirement accounts during the marriage are considered to be community property.

Arizona Revised Statutes, § 25-213 defines Separate Property as anything acquired by a spouse before the date of marriage or after service of petition for divorce (if the divorce actually goes through).  Gifts and/or money received by way of inheritance during the marriage are also separate property.  All of the rents, profits, earnings, dividends, and interest on separate property remain separate property.

In other words, your old baseball card collection is separate property.   The Barbie dolls your mother saved from when you were a kid – separate property.  That family heirloom your Aunt Gladys gave you last Christmas – separate property.  The money your grandfather left you when he died – separate property.  The 60” TV and surround sound system you bought with that inheritance – separate property.  The stock you purchased with grandpa’s money (which went up 10% last year) – also separate property.  If you owned a house prior to your marriage, then rented it out after you got married — the rental income is your separate property.  If you later sold that house and used the money to buy another house in your own name – well, that new house is your separate property, too (even if you and your new spouse are living in it).

BUT WARNING:  If you’re not careful, what starts out as separate property can be magically changed into community property during the marriage – as will be explained below.

The “marital community” terminates when a spouse files and serves a Petition for Dissolution of Marriage, or an Annulment.  Thereafter, income earned by either party (which was considered to be community property) is now the separate property of the person who earns it.

What does the statute mean when it says the court divides community property “equitably”?
Equitable division does not always mean an equal division.  What it really means is a “fair” division.  The court is not required to divide community property exactly equally; but it cannot, without reason, create a gross disparity or make its award arbitrarily.  In the absence of sound reasons which justify contrary results, apportionment of the community estate upon dissolution of marriage must be “substantially equal.”
In making an equitable division, the court may consider the length of marriage as part of any unequal division. The court can also divide property unequally if it determines that one of the spouses wasted community assets (for example, if one of the spouses gambled away thousands of dollars, or spent community funds on drugs, etc.)
What happens if separate property is commingled with community property?
When community property is mixed with separate property, the potential issue of “commingling” arises.  Commingling happens when, for instance, a spouse puts the funds from her grandmother’s inheritance into a joint account that belongs to both spouses; or when a spouse’s salary from work (community property) is deposited into the checking account that he set up prior to the marriage in his own name (separate property).
Mixing separate and community funds makes for a confusing situation, and it can lead to the loss of your separate monies.  Funds that are mixed can retain their character as separate property, but only if you can still figure out what funds come from where.  You must be able to trace the separate assets.  However, when separate and community monies are mixed there is a legal presumption that the new “pot” of commingled funds is entirely community property.  The burden is upon the one claiming that the proceeds are separate property to prove, by clear and satisfactory evidence,” that the separate property portion can be traced. And this is no easy task.
Can property lose its character as separate property and become “transmuted” into community property?
Absolutely!  Here’s an example:  If you are depositing your separate funds into a community property account and, over time, you are writing checks, making deposits and withdrawals, etc. — eventually the separate and community monies will become mixed to such an extent that you can’t trace it or figure out what belongs to who.  At that point, it has undergone “transmutation.”  Your separate money has lost its character separate property.  It is now community property and will be divided essentially equally in a divorce.
Can a person unintentionally make a “gift” of separate property to the marital community?
Yes.  A common scenario is where a party contributes separate funds to pay a down-payment on a marital home that is taken in joint tenancy.  Years later, one of the parties files for divorce and, when the house is sold, the party who contributed the separate funds for the down-payment wants his/her money back, claiming that it was intended as a loan, and not a gift.
The necessary elements to find that a gift was made include: (1) donative intent, meaning that you intended to make a gift, (2) delivery, meaning that the gift was actually delivered to the other person’s possession, and (3) a vesting of irrevocable title upon such delivery, meaning that you delivered the gift with no intention of retaining any sort of interest in the piece of property any longer.
Under Arizona law, there is a presumption that contribution of separate assets to community property equals a gift.  The presumption can be rebutted through clear and convincing evidence showing that there was no intent to make the alleged gift.  But this is a steep hill to climb.  In the scenario above, rebutting the presumption of a gift will be extremely difficult without a written memo or other persuasive evidence of intent.
How can I protect my separate property?
Here are some ways that you can protect your separate property:
·      (1)  Keep your pre-marital monies in a separate bank account in your own name;
·      (2)  Avoid commingling;
·      (3)  If you are buying a house together and you are contributing your separate monies to the down payment, be sure to draft a written memo confirming your intention that the use of separate funds to pay the down payment (or any other payment) is a loan from the marital community and is to be paid back upon sale of the property – and make sure your spouse signs the memo;
·      (4)  Place your separate property in a living revocable trust;
·      (5)  Obtain “innocent spouse” status (the IRS provides this status to spouses to relieve them of the responsibility for paying taxes that the other spouse owes);

·      (6)  If you receive an inheritance, place the money in a bank account in your name alone, and do not mix it with community funds (for instance, make sure not to deposit your employment income into that account).

If you have substantial separate-property assets and/or if you do not want your employment income to be considered community property, then you would be well-advised to have an attorney prepare a valid Prenuptial Agreement (or a Postnuptial agreement, if you are already married).  The agreement will need to conform to the law and be signed by both spouses.

 

Our Family Law Firm is here to help you work through even the most difficult and complicated property division matters. Gary J. Frank is an Arizona attorney and former Judge Pro Tem with over thirty years of experience in dealing with custody and parenting time issues in Family Court.  Hanna Juncaj is a highly skilled litigator, a compassionate counselor, and a strong advocate for every one of her Family Law clients. To schedule a personal consultation with our attorneys, you may contact us by telephone at 602-383-3610, or by email through our web site at www.garyfranklaw.com.

The issues in this blog are provided general informational purposes only and should not be relied on as legal advice in your particular case, nor should it be construed as forming an attorney-client relationship.  Every Family Court case is unique.  If you have a matter that appears similar to any of the scenarios that you read in this blog, you should be aware that: (1) even a slight difference in a factual situation can lead to a vastly different result; and (2) the laws are constantly changing and new laws are continually being enacted.  Legal advice cannot be given without a full consideration of all relevant information relating to your individual situation.  Therefore, if you have an important legal issue, you should obtain a consultation with a qualified attorney.  


THE ASHLEY MADISON HACK AND NO-FAULT DIVORCE

A brunette with perfectly applied lipstick holds a single finger to her lips in a “shh” motion. Her beautifully manicured hands display a golden wedding band. Next to her are the words “Life is short. Have an affair.”
This controversial logo represents Ashley Madison, an online dating service and social networking site marketed to people who are married or in a committed relationship. It offers affair guidelines and even provides advice on how to cover one’s tracks when pursuing an adulterous affair. In mid-August of this year, the identities of the 37 million users registered on the database were released by hackers. This release included data from customers who had paid a $19 fee to Ashley Madison to allegedly have their data deleted. Now, there are multiple online search engines allowing you to check if your data or the data of someone you know was leaked in the release.
As more high-profile names surface among the millions of users of Ashley Madison, speculation continues about the divorce consequences for the adulterous users of the site. It is a popular opinion that divorce rates will undoubtedly increase as more cheaters are exposed; but if they do, how will the matter be handled by the courts?
Actually, the consequences would have been greater under historical family laws, which governed a “fault” regime. For instance, back then, a divorce was only permissible if a spouse could prove one of several fault grounds; adultery was one of them. But today, in Arizona and many other states, a spouse can petition for a divorce without the necessity of proving fault on the part of the other spouse: Arizona requires only that the spouse cite an irretrievable breakdown of the marriage.  Thus, Arizona is a “no-fault” divorce state.
In most divorces, property division and child custody are the primary concerns of the spouses. Under a “fault” regime, a cheating spouse may have had to pay in the property division or alimony award for an extramarital affair.  Today, however, Arizona and many other “no-fault” states do not consider who caused the breakdown of the marriage when dividing property; nor is “fault” a factor that the Court considers in determining spousal maintenance.  However, if the spouse implicated in the Ashley Madison leak misused marital finances (termed “community property” in the legal world), then economic fault can be a factor the Court considers in both the division of property and spousal maintenance. 
Regarding child custody (now called “legal decision-making and parenting time”), the court will rule based on what is in the best interests of the children. This is more of a “gray area,” or case-by-case situation, as it may be difficult to prove how the parent’s sexual activities negatively impacted the best interest of the children.  If it can be shown that a parent’s inappropriate behavior directly affected the children (such as taking them on dates, or exposing them to the paramour, etc.) then it is possible that the Court would consider the parent’s conduct in making a “custody” award.

If the Ashley Madison hack had happened in a previous era of family law, the evidence obtained would have been much more useful in initiating divorces and awarding assets to the “victimized” spouse. However today, due to the dominant “no-fault” regime of the United States, even if a spouse wanted to initiate a divorce based on the data from the Ashley Madison hack, it is unclear whether it would have much of an effect; since, aside from embarrassment, the cheating spouse would almost assuredly suffer less financial and custodial consequences than in earlier times.

G.Frank & J.Chen


Gary J. Frank is a Family Law Attorney, a litigator, and a mediator with over thirty years of experience in dealing with divorcepaternity, custody, and parenting issues. For many years he acted as a Judge Pro Tempore in the Maricopa County Superior Court, which gave him an insight into the inner workings of the courts that many attorneys lack.  In addition to representing Family Law clients in litigation, we are also willing to help people by working with them on a Limited-Scope or Consultation-Only basis.  Our office is located in the Biltmore area of central Phoenix, with satellite offices in Scottsdale and Paradise Valley, Arizona.  We can be reached by telephone (602-383-3610); or by email at gary.frank@azbar.org.  You can also reach us through our website at www.garyfranklaw.com.  If you are in need of a consultation regarding any area of Family Law, contact us today.  We’d be happy to help.

THE PEACEFUL PATH

Sometimes you have to get tough.  Sometimes you have to stand your ground and fight.  That’s when you need a strong lawyer.  But the strong lawyers, the truly excellent ones, will tell you that in most divorce cases it is best to start out by exploring the peaceful path.

Great lawyers will tell you that you can’t “win” a divorce in the same way you would win a business dispute over a contract.  In a business litigation, where someone has breached a contract, a judge or jury could award you the entire value of the contract.  Winning means getting the whole thing.  But divorce litigation is different.  In a divorce, a couple is dividing property.  They are divvying up property that they’ve accumulated over the course of their entire marriage.  The law provides that community property is to be split “equitably.”  In other words, each side will be given approximately equal portions.  In a divorce, you can’t win all the property.  You’re only going to come away with about 50%.  So, why not try to negotiate a fair resolution rather than battling it out in court?

To put it another way:  Imagine that all your community property is baked into a pie.  The judge is going to divide that pie.  And even if your share turned out to be more than half, it’s still going to be less than what you had when you were married – because when you were married you had the whole pie.  So, what’s the wisest thing you can do?  The answer is simple:  Make sure to give your attorneys the smallest slice of the pie.  Here’s how it works:  The more you fight, and the longer the litigation drags out, the larger the attorneys’ slice of the pie becomes.  But if you are able to successfully negotiate a fair division of your assets rather than slugging it out in court, you can reach a settlement early and amicably — and keep more of the pie for yourself.  You can do that by getting rid of the “I Win/You Lose” mentality.  You can do it by exploring mediation, settlement conferences, or other forms of dispute resolution.  You can do it by controlling your emotions and treating the division of property like a business negotiation rather than a tug of war between two angry people.  You can do it by being reasonable, and being willing to compromise.  That’s not being weak.  It’s being smart.

Too often, when divorcing couples become involved in a long, protracted litigation over property, the only winners are the lawyers.  That’s why you need a strong lawyer, someone who is looking out for your best interests.  A lawyer who knows how to fight, but is willing to help you explore the peaceful path.

Gary J. Frank is a Family Law Attorney, a litigator, and a mediator with over thirty years of experience in dealing with divorcepaternity, custody, and parenting issues. For many years he acted as a Judge Pro Tempore in the Maricopa County Superior Court, which gave him an insight into the inner workings of the courts that many attorneys lack.  In addition to representing Family Law clients in litigation, we are also willing to help people by working with them on a Limited-Scope or Consultation-Only basis.  Our office is located in the Biltmore area of central Phoenix, with satellite offices in Scottsdale and Paradise Valley, Arizona.  We can be reached by telephone (602-383-3610); or by email at gary.frank@azbar.org.  You can also reach us through our website at www.garyfranklaw.com.  If you are in need of a consultation regarding any area of Family Law, contact us today.  We’d be happy to help.

CUSTODY BATTLES OVER PETS ARE ON THE INCREASE

Pets are part of the family.  So, it is no wonder that custody battles over pets are on the increase.  But the problem is that pets are considered to be property in every state.  There are no laws establishing custody for cats, or parenting time for poodles.  Judges are aware that a person’s relationship with his or her pet can be deep and meaningful.  They know that dividing the owners’ time with their furry loved-one cannot be handled in the same manner as dividing a piece of furniture.  However, there are no set rules for deciding how to make that division.
In making decisions involving pets, a judge will sometimes order that the pet shall stay in the primary residential home with the children; or the Court might consider the therapeutic value in awarding the pet to a spouse (for instance, if one of the owners has a medical or behavioral health condition that would benefit from having the pet remain near, then the pet could be awarded that that person).  But the bottom line is that a pet is merely community property under the law.
In dividing time with a pet, the best results occur when the parties are willing to compromise.  Working out your own plan and time schedule, without the need for a judge’s intervention, is best.  If you cannot do that, then you should consider mediation.  A mediator is a neutral third-party who is an expert at working with people and helping them negotiate their own resolution of a dispute.   Resorting to litigation in the courts should be the last resort – because there is no law on the books which will guide a judge in determining Pet Custody.



Gary Frank has practiced Family Law in the prestigious Biltmore area of Phoenix, Arizona for over thirty years.  In addition to representing clients in divorce, custody, paternity, enforcement, modification, move-away, grandparent rights, non-parent rights, and other Family Law matters, Mr. Frank has also acted as a Mediator and a Superior Court Judge Pro Tem.  If you are in need of a consultation, please give us a call today at 602-383-3610.  You can contact us by email at gary.frank@azbar.org, or through our web site at www.garyfranklaw.com.  We’d be happy to help you.

NEW BILL WOULD HURT SPOUSES OF SERVICEMEN & WOMEN

There’s a new bill floating around the legislature – SB 1373 – which will significantly change Community Property Law in Arizona by eliminating all military assets and benefits from community property division in divorce cases.  We all want to protect the interests of the courageous men and women in our armed forces, many of whom are sent overseas to fight for our freedom.  But we shouldn’t ignore the fact that their sacrifice is often matched by a spouse who remains at home to raise the children, pay the bills, work to make ends meet, keep the family afloat, and worry each and every day about her (or his) loved-one’s safety.  By doing their part, these selfless spouses are also helping to protect our American way of life.

Marriage is a partnership.  Each spouse plays a role.  A stay-at-home parent who cares for the children is as important to the family as a working parent who provides the financial support.  That’s the reason behind “Community Property Law,” which essentially gives each spouse an undivided 50% interest in all property and other assets acquired during the marriage (including retirement and military benefits).

This proposed bill (SB 1373) goes too far in its effort to protect our military by completely ignoring the sacrifices made by the brave spouse who stays behind.  The effect of this law will be that if the parties divorce (even after a long-term marriage) the non-military spouse will have no interest at all in the retirement benefits or other military assets of the spouse who served in the armed forces.  Often, these benefits constitute the lion’s share of the marital assets.  If this law passes, then a divorce could leave the non-military spouse — who has also served our country by providing care and support for a military family — with nothing.  For our legislature to completely overlook the important sacrifices made by the wives and husbands of servicemen-and-women would be a grave injustice.  That’s why I oppose SB 1373.  If you have strong feelings about this bill, one way or the other, please contact your elected representative.