Is Disability Pay Community Property in Arizona?
Disability Payments and Arizona Community Property Laws
Arizona’s community property laws provide the rules about how spouses divide up property when they divorce or separate.
Money earned during marriage by either of them – and property purchased with it — is termed community property and belongs equally to each of them.
Income earned before marriage or after separation is the separate property of the spouse who earned it and belongs solely to him. With respect to disability payments, the questions becomes are disability payments community property in Arizona?
In the case of Helland vs. Helland, 337 P.3d 562 (Ariz. Ct. App. 2014) the Arizona Court of Appeals discussed whether payments from a disability insurance policy were community property, belonging equally to both spouses, or the separate property of the disabled spouse.
It also addressed issues about a waste of a community asset and spousal support.
Are Disability Payments Community Property in Arizona?
Kara and Stephen Helland married in 1989 and filed for divorce in 2010.
For the first half of the marriage, Stephen worked as an anesthesiologist, and the couple purchased disability insurance for him with community funds.
He became disabled in 2000 and was no longer able to work in that career.
He collected disability insurance of about $14,000 per month that would continue until he was 65 years old.
He also retrained as a pain specialist.
The couple opened a specialty office and Kara managed the business.
However, Stephen engaged in criminal conduct and, after some years, lost his license to practice medicine.
They sold the practice, Kara filed for divorce and he went to jail.
The main argument at trial concerned the disability payments—whether they were community property as Kara claimed, or Stephen’s separate property.
A second issue was Kara’s claim that she was entitled to compensation because Stephen wasted a community asset.
The superior court ruled against her on these issues but awarded her spousal support for seven years.
The Disability Insurance Payments
Kara argues that because the disability insurance payments were made with community property money that belonged to both spouses equally, the disability payments should also be community property, not Stephen’s separate property.
The Court of Appeals noted that the main reason people buy disability insurance is to protect an income stream in case the working spouse loses his future earning capacity.
During the marriage, a spouse’s income is community income, but after a divorce, it is his separate income.
Just so, during a marriage, loss of a spouse’s earning capacity means lost income to the community.
After a divorce, it is the separate loss of the disabled spouse.
Under Arizona law, if a spouse receives disability payments after divorce that represent reimbursement for wages, the payments belong solely to that spouse.
Therefore the Court of Appeals agreed with the superior court that the disability payments were not community property but Stephen’s separate property.
Disability Payments and Divorce in Arizona
In Arizona, all money received by one spouse during marriage – other than that received as a gift or by inheritance – is presumed to belong to both spouses as community property.
However, special rules apply when the money is a recovery under a disability insurance policy. In the recent case of Hatcher v. Hatcher, 933 P.2d 1222 (Ariz. Ct. App. 1996), the Arizona Court of Appeals discussed whether disability payments made to one spouse during the marriage are community property or the sole property of the injured spouse.
Facts of the Case: Hatcher v. Hatcher
Marvin and Julia Hatcher were married in 1980. Marvin signed up for an insurance program offered by his employer that provided compensation in case of accidental death, dismemberment or disability.
The premiums were deducted from his wages. In 1984, when Marvin lost his right hand and part of his right arm in a work-related accident. He received a small worker’s compensation award, as well as a recovery under the insurance policy: a payment of $120,000, plus monthly payments for 54 months.
The couple used part of the lump sum payment to buy a family residence, with Marvin and Julia taking the title as joint tenants.
They used the monthly payments to pay off the rest of the money owed on the house. They also used some of the insurance settlement to build an apartment complex on land Marvin owned before marriage. Marvin and Julia also took title to the apartments as joint tenants. Julia filed for divorce in 1991. At trial, the court found that the insurance settlement proceeds were Marvin’s separate property and that all of the real property belonged solely to Marvin. Julia appealed.
Arguments on Appeal
Julie argued on appeal that the insurance proceeds were Community Property because the premiums were paid with community money. Alternatively, she claimed that – even if the monies were Marvin’s separate property — the fact that the property was held by both of them in joint tenancy created a presumption that Marvin intended to make a gift to her. Marvin argued that all of the insurance proceeds were intended to compensate him for his injuries and, therefore, were his separate property.
Arizona Divorce Law on Personal Injury/Disability Recoveries
The Court of Appeals reviewed Arizona case law about how personal injury or disability recoveries should be treated in an Arizona divorce. In Jurek v. Jurek, 124 Ariz. 596, 606 P.2d 812 (1980), the Arizona Supreme Court ruled that one spouse’s personal injury recovery can include some money that is community property and some that are separate property.
Any part of the recovery that compensates the spouses for medical treatment payments or loss of wages during the marriage is community property. On the other hand, any portion of the recovery that is intended to compensate for the injury to a spouse’s personal well-being is that spouse’s separate property.
Subsequent cases held that any part of disability payments that are to compensate the injured spouse for lost wages after a divorce is his separate property. The Court of Appeals noted that no decision focused on how disability benefits received during the marriage should be treated.
Disability Proceeds May Be Partly Community Property
The Court determined that a spouse’s disability insurance compensation can be partly community property. It rejected Julia’s position that the fact that the policy was purchased with community funds was important. Rather, it ruled that — like personal injury recoveries — disability benefits have various parts.
The primary intent of disability insurance is to protect against the loss of a spouse’s future earning capacity. During the marriage, a disabled spouse’s reduced earning capacity results in a loss to the community. If the spouses’ divorce, any reduced earning capacity becomes the separate loss of the disabled spouse.
The Court ruled that Marvin’s loss of his arm and hand resulted in both a loss of earnings and a permanent impairment to his future earning ability. Workers’ compensation insurance provided compensation for lost wages. The lump sum disability payment was to compensate for the reduction in Marvin’s future earning capacity.
Some of the insurance proceeds compensated the community for his reduced earning capacity during the marriage, which amount was community property. The remainder of the lump sum payment compensated him for future (post-dissolution) lost earning capacity.
That portion is the husband’s separate property. The Court sent the case back to the trial court to determine what amount of the disability recovery was separate and what part community property. It also orders the trial court to revisit Julia’s claim that, in placing title in joint tenancy with wife, Marvin made a gift of his separate property to her.
If you have questions about disability pay and community property in an Arizona divorce case, you should seriously consider contacting the attorneys at Hildebrand Law, PC. Our Arizona community property and family law attorneys have over 100 years of combined experience successfully representing clients in community property and family law cases.
Our family law firm has earned numerous awards such as US News and World Reports Best Arizona Family Law Firm, US News and World Report Best Divorce Attorneys, “Best of the Valley” by Arizona Foothills readers, and “Best Arizona Divorce Law Firms” by North Scottsdale Magazine.
Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your Arizona community property or family law case around today.
More Articles About Arizona Community Property Laws
- UNEQUAL DIVISION OF PROPERTY IN A DIVORCE IN ARIZONA
- DIVIDING PROPERTY NOT INCLUDED IN DIVORCE DECREE IN ARIZONA
- EFFECT OF COMMUNITY PROPERTY LAWS ON A PERSONAL GUARANTY IN ARIZONA
- DIVISION OF PENSIONS IN AN ARIZONA DIVORCE
- CAN A SPOUSE BE HELD LIABLE FOR CREDIT CARD DEBT IN ARIZONA
- DIVISION OF DEBT IN AN ARIZONA DIVORCE
- MILITARY RETIREMENT PAY AND DIVORCE IN ARIZONA
- INTEREST ON A LOAN BETWEEN SPOUSES IN AN ARIZONA DIVORCE
- IMPROVEMENTS TO SEPARATE PROPERTY IN AN ARIZONA DIVORCE
- ENFORCING A PROPERTY SETTLEMENT AGREEMENT IN AN ARIZONA DIVORCE
- DETERMINING COMMUNITY VERSUS SOLE AND SEPARATE PROPERTY IN ARIZONA
- FAIR COMPENSATION DEFENSE IN AN ARIZONA DIVORCE
- EFFECT OF A DISCLAIMER DEED OR QUITCLAIM DEED IN A DIVORCE IN ARIZONA
- ENFORCE DIVISION OF PROPERTY AND DEBT IN AN ARIZONA DIVORCE
- HOW STOCK OPTIONS ARE DIVIDED IN AN ARIZONA DIVORCE
- HOW RETIREMENT ACCOUNTS ARE DIVIDED IN AN ARIZONA DIVORCE
- HOW IS COMMUNITY PROPERTY DIVIDED IN ARIZONA
- IS SEPARATE PROPERTY DIVIDED DIFFERENTLY THAN COMMUNITY PROPERTY IN ARIZONA
- DIFFERENCE BETWEEN COMMUNITY AND SEPARATE PROPERTY IN ARIZONA
- WHAT IS CONSIDERED TO BE SEPARATE PROPERTY IN ARIZONA
- IS ALL PROPERTY OWNED BY EITHER SPOUSE COMMUNITY PROPERTY IN ARIZONA
- DO RULES REGARDING PROPERTY APPLY TO DEBTS IN ARIZONA
- WHAT HAPPENS WHEN SEPARATE PROPERTY IS USED TO PURCHASE A HOME DURING MARRIAGE IN ARIZONA
- COMMUNITY LIEN ON SOLE AND SEPARATE PROPERTY IN ARIZONA
- HOW TO DIVIDE PROPERTY IN ARIZONA WHEN A SPOUSE IS HIDING ASSETS
- IS ARIZONA A 50 50 STATE IN A DIVORCE
- UNFAIR SEPARATION AGREEMENT IN ARIZONA
- VALUATION AND DISTRIBUTION OPTIONS FOR A PENSION IN AN ARIZONA DIVORCE
- FILING A LIS PENDENS IN A DIVORCE IN ARIZONA
- COMMUNITY PROPERTY LIEN ON A DEPRECIATING ASSET IN ARIZONA
- REIMBURSEMENT FOR PAYING SEPARATE DEBTS OF A SPOUSE IN ARIZONA
- REFUSAL TO SELL A HOUSE AFTER A DIVORCE IN ARIZONA
- EFFECT OF MILITARY BENEFITS ON A DIVORCE IN ARIZONA
- VALUING GOODWILL OF A LAW FIRM IN AN ARIZONA DIVORCE
- EFFECT OF A DISCLAIMER DEED ON COMMUNITY PROPERTY RIGHTS IN A DIVORCE IN ARIZONA
- EFFECT OF USING SOLE AND SEPARATE FUNDS USED TO BUY A HOUSE IN ARIZONA
- DIVISION OF MILITARY RETIREMENT AND DISABILITY PAYMENTS IN AN ARIZONA DIVORCE
- WHEN SEPARATE PROPERTY IS USED TO BUY COMMUNITY PROPERTY IN ARIZONA
- WHAT HAPPENS WHEN ASSETS ARE NOT DIVIDED IN AN ARIZONA DIVORCE DECREE
- PROPERTY HELD AS JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP IN A DIVORCE IN ARIZONA
- SEGREGATING SEPARATE FROM COMMUNITY PROPERTY IN ARIZONA
- TRANSMUTING SEPARATE INTO COMMUNITY PROPERTY IN ARIZONA
- TRACING SEPARATE PROPERTY IN AN ARIZONA DIVORCE
- REIMBURSEMENT OF SEPARATE PROPERTY IN ARIZONA
- COMMUNITY LIABILITY FOR SEPARATE DEBTS IN ARIZONA
- STATEMENTS ON PROPERTY ARE BINDING IN AN ARIZONA DIVORCE
- DIVIDING RETIREMENT ACCOUNTS IN A DIVORCE IN ARIZONA
- SELLING A HOUSE DURING A DIVORCE IN ARIZONA
- CRSC PAY AND DIVORCE IN ARIZONA
- JUDGMENT FOR SEPARATE PROPERTY STOLEN DURING MARRIAGE IN ARIZONA
- JUDGE IGNORES A BUSINESS APPRAISAL IN AN ARIZONA DIVORCE
- MINORITY DISCOUNT IN A BUSINESS APPRAISAL IN AN ARIZONA DIVORCE
- WHAT HAPPENS TO PERSONAL INJURY AWARDS IN A DIVORCE IN ARIZONA
- REIMBURSEMENT OF SEPARATE PROPERTY IN A DIVORCE IN ARIZONA
- THE VALUATION OF A LAW PRACTICE IN A DIVORCE IN ARIZONA
- COMMUNITY PROPERTY LOTTERY WINNINGS IN ARIZONA
- IMPACT OF FILING A HOMESTEAD ON SEPARATE PROPERTY IN ARIZONA
- SEPARATE PROPERTY INCREASES IN VALUE DURING MARRIAGE IN ARIZONA
- DIVIDING CONTINGENCY FEES IN A DIVORCE IN ARIZONA
- EFFECT OF POSTNUPTIAL AGREEMENT ON CREDITORS IN ARIZONA
- EFFECT OF A PRENUPTIAL AGREEMENT ON CREDITORS IN ARIZONA
- VALUING A BUSINESS IN ARIZONA DIVORCE WITH NO FINANCIAL DOCUMENTS
- UNAUTHORIZED USE OF A POWER OF ATTORNEY IN ARIZONA
- EFFECT OF PLACING COMMUNITY PROPERTY INTO A FAMILY TRUST IN ARIZONA
- WHAT HAPPENS TO AN INCREASE IN RETIREMENT BENEFITS AFTER A DIVORCE
- FAILURE TO DISCLOSE FINANCIAL INFORMATION IN ARIZONA
- AWARD OF MONEY IN AN ARIZONA DIVORCE
- INTEREST ON A JUDGMENT IN AN ARIZONA DIVORCE DECREE
- SANCTIONS FOR COMPELLING LATE DISCOVERY IN ARIZONA
- PREMARITAL AGREEMENTS AND CREDITORS IN ARIZONA
- INTEREST ON A JUDGMENT IN AN ARIZONA DIVORCE DECREE
- FRAUDULENT QUITCLAIM DEED IN AN ARIZONA DIVORCE
- WHAT HAPPENS TO DEBTS NOT INCLUDED IN A DIVORCE DECREE IN ARIZONA
- IS SEPARATE PROPERTY LIABLE FOR COMMUNITY DEBT IN ARIZONA
- EFFECT OF COMMINGLING SEPARATE AND COMMUNITY PROPERTY IN ARIZONA
- EFFORT DOES NOT ENTITLE A SPOUSE TO MORE COMMUNITY PROPERTY IN ARIZONA
- COMMUNITY PROPERTY INTEREST IN A BUSINESS OWNED PRIOR TO MARRIAGE
- WHAT HAPPENS TO LOANS BEFORE MARRIAGE IN ARIZONA
- TITLE AFFECTS COMMUNITY PROPERTY RIGHTS IN ARIZONA
- LIABILITY FOR A SPOUSE’S NEGLIGENCE IN ARIZONA
- CREDITOR COLLECTING A SEPARATE DEBT WITH COMMUNITY PROPERTY IN ARIZONA
- VALUATION OF STOCK HOLDINGS AND DEBT IN AN ARIZONA DIVORCE
- COMMUNITY PROPERTY LIABILITY EXISTS EVEN AFTER PROBATE ENDS
- CAN A CREDITOR TAKE SOLE AND SEPARATE ASSETS IN ARIZONA
- IMPACT ON THE INCREASED VALUE OF A BUSINESS IN AN ARIZONA DIVORCE
- PROFITS FROM SOLE AND SEPARATE BUSINESS IN AN ARIZONA DIVORCE
- EFFECT OF COMBINING COMMUNITY AND SEPARATE PROPERTY IN ARIZONA
- ABANDONMENT OF MARRIAGE AND COMMUNITY PROPERTY RIGHTS IN ARIZONA
- EFFECT OF AN INCREASE IN SEPARATE BUSINESS STOCK IN AN ARIZONA DIVORCE
- VALUING A PENSION PLAN IN A DIVORCE IN ARIZONA
- GIFT OF SEPARATE PROPERTY BY ISSUING A JOINT TENANCY DEED IN ARIZONA
- CREDITOR LIEN ON JOINT TENANCY PROPERTY IN AN ARIZONA DIVORCE
- FAILURE TO PROVIDE EVIDENCE OF THE VALUE OF PROPERTY IN AN ARIZONA DIVORCE
- MILITARY RETIREMENT PAYMENTS IN AN ARIZONA DIVORCE
- JOINT TENANCY PROPERTY IN AN ARIZONA PROBATE
- CHANGING JOINT PROPERTY INTO COMMUNITY PROPERTY IN ARIZONA
- DISPOSITION OF COMMUNITY PROPERTY IN A LAST WILL AND TESTAMENT
- COMMUNITY LIEN IN A SOLE AND SEPARATE BUSINESS IN A DIVORCE IN ARIZONA
- COMMUNITY FUNDS PAID ON A SOLE AND SEPARATE HOUSE IN ARIZONA
- TRANSMUTING SEPARATE PROPERTY INTO COMMUNITY PROPERTY BY COMMINGLING IN ARIZONA
- COMMUNITY LIABILITY FOR DEBT GUARANTEED BY SPOUSE IN ARIZONA
- SEPARATE FUNDS TO BUY JOINT PROPERTY IN ARIZONA
- COMPENSATION FOR WASTE OF COMMUNITY ASSETS IN AN ARIZONA DIVORCE
- DAMAGE CAUSED BY A COMMUNITY PROPERTY VEHICLE IN ARIZONA
- WHAT TO DO WHEN A SPOUSE IS HIDING ASSETS IN A DIVORCE IN ARIZONA
- OPTIONS FOR BUSINESS OWNERS GOING THROUGH A DIVORCE IN ARIZONA
- MURDERER SPOUSE & COMMUNITY PROPERTY IN ARIZONA
- ENFORCING A SURVIVOR BENEFIT ELECTION IN A PENSION IN A DIVORCE IN ARIZONA
- DIVORCE AND PERSONAL INJURY AWARDS IN ARIZONA
- INJURY AWARDS AND DIVORCE SETTLEMENTS IN ARIZONA
- PROTECT YOUR PERSONAL INJURY AWARD IN AN ARIZONA DIVORCE
- CLAIM OF SPOUSE’S PERSONAL INJURY AWARD IN AN ARIZONA DIVORCE
- PROVING WHAT IS SOLE AND SEPARATE PROPERTY IN AN ARIZONA DIVORCE
- VALUING A HOUSE DURING A DIVORCE IN ARIZONA
- DEFERRED RETIREMENT OPTION PLANS IN AN ARIZONA DIVORCE
- 7 REASONS WHY YOU MIGHT HAVE TO SHARE YOUR PERSONAL INJURY SETTLEMENT IN ARIZONA DIVORCE
- PERSONAL INJURY SETTLEMENT IN A DIVORCE IN ARIZONA
- IMPACT OF TAXES IN A DIVORCE SETTLEMENT IN ARIZONA
- DIVORCE AND REFINANCING A MORTGAGE IN ARIZONA
- RETIREMENT ACCOUNTS, QDROS, AND DIVORCE IN ARIZONA
- TYPES OF BUSINESS APPRAISALS IN A DIVORCE IN ARIZONA
- HEARING TO CONTEST RULE 69 AGREEMENT IN ARIZONA
- HOW TO DEAL WITH A FRAUDULENT CONVEYANCE IN ARIZONA DIVORCE
- PROPERTY EQUALIZATION PAYMENTS IN AN ARIZONA DIVORCE
- TITLE SEARCH ON HOME DURING DIVORCE IN ARIZONA
- DIVIDING ACCOUNTS RECEIVABLE IN AN ARIZONA DIVORCE
- CLAIMS OF WASTE IN AN ARIZONA DIVORCE
- BANK ACCOUNTS AND DIVORCE IN ARIZONA
- REIMBURSEMENT FOR PAYING BILLS IN ARIZONA DIVORCE
- DEFERRED MILITARY RETIREMENT PAY AND DIVORCE IN ARIZONA
- SURVIVOR ELECTION AND MILITARY RETIREMENT IN ARIZONA
- DEFENSE TO REIMBURSEMENT FOR PAYING BILLS IN A DIVORCE IN ARIZONA
- CSRS BENEFITS AND DIVORCE IN ARIZONA
- DIVIDING A PROFESSIONAL PRACTICE IN A DIVORCE IN ARIZONA
- COMMUNITY PROPERTY AND ANNULMENT OF MARRIAGE IN ARIZONA
- DEFINITIVE GUIDE TO DIVIDING A BUSINESS IN A DIVORCE IN ARIZONA
- DIVIDING BUSINESS PROFITS DURING A DIVORCE IN ARIZONA
- MINORITY DISCOUNT IN A BUSINESS VALUATION IN AN ARIZONA DIVORCE
- ARIZONA COMMUNITY PROPERTY LAWS
SCHEDULE YOUR CONSULTATION TODAY!PLEASE COMPLETE OUR NEW CLIENT INTAKE FORM TO SCHEDULE YOUR CONSULTATION TODAY!
Chris Hildebrand wrote the information on this page about disability benefits in a divorce to ensure everyone has access to information about community property laws in Arizona. Chris is a divorce and child custody attorney at Hildebrand Law, PC. He has over 24 years of Arizona family law experience and has received multiple awards, including US News and World Report “Top Arizona Divorce Attorneys”, Phoenix Magazine “Top Divorce Law Firms”, and Arizona Foothills Magazine “Best of the Valley” award. He believes the policies and procedures he uses to get his clients through a divorce should all be guided by the principles of honesty, integrity, and actually caring about what his clients are going through in a divorce.