Arizona is a community property state, which means that most property acquired by either spouse is subject to division during a divorce. However, unlike most community property states that require a 50/50 split, Arizona’s statute calls for an “equitable” division — not necessarily an equal one — of both assets and liabilities. This means the court strives to achieve fairness, considering various circumstances that may warrant unequal division, such as significant disparity in earning abilities, either spouse's concealment of assets or specific circumstances concerning the property.

Community property typically includes all assets and debts acquired by either a husband or a wife between the date of marriage and the date of service of a petition that results in a decree of dissolution, legal separation or annulment. Separate property comprises assets owned before the marriage, as well as are gifts or inheritances to either spouse and personal injury damages obtained by either spouse.

This distinction seems simple, but the categorization of an asset as community or separate can be complicated by several factors. Assets may be commingled, that is, blended to the point their source becomes undiscernible. For example, one spouse owned a home before marriage, but earnings of the other spouse were used to pay the mortgage or to finance home improvements. Separate property can also be transmuted to community property, such as when the spouse with ownership voluntarily adds their spouse’s name to the title. Tracing the origins and uses of funds may require forensic accounting.

Other issues that can complicate the division process are:

• Valuation disputes — Fair market values of real estate fluctuate, making it difficult to agree on a dollar figure for the family home or investment property. When one or both spouses own a closely held business, there are multiple methods for assessing its value. Unique assets such as intellectual property, collectibles or works of art also pose valuation disagreements. Each spouse might hire their own experts, which can lead to competing appraisals.

• Hidden or undisclosed assets — Full disclosure of each spouse’s assets and debts is mandatory in an Arizona divorce. Nevertheless, a spouse might conceal bank accounts, underreport business revenue or otherwise seeks to hide or undervalue assets, hoping to secure a larger share of community property. Forensic accountants or investigators may have to be used to trace hidden funds and identify property and its value. Penalties for hiding assets can include contempt of court or awarding the other spouse a greater share of community property.

• Assets requiring special care in division — Examples are retirement accounts like pensions, 401(k)s, IRAs and similar plans. To the extent their value accrues during the marriage, they are considered community property, regardless of whose name is on the account. Valuation of unvested benefits and defined benefit plans may require actuarial calculations to determine a present value for benefits that might not pay out for years. To boot, cashing out or dividing certain accounts before retirement age can result in taxes and early withdrawal penalties. Courts issue qualified domestic relations orders (QDRO), allowing plan administrators to pay non-owner spouses their shares without triggering these results. 

Given these complexities, the assistance of an experienced Arizona property division lawyer is often essential to protect each spouse’s interests and ensure a just outcome.

Clark & Schloss Family Law, P.C. in Scottsdale offers Arizonans full representation in divorce matters, including community property division. Call us at 602-789-3497 or contact us online to set up a consultation.