How is Community Property Divided in Arizona?
Dividing Community Property in an Arizona Divorce
The court prefers for spouses to decide for themselves how best to divide their assets and debts. Such an agreement is typically memorialized in a written settlement agreement often referred to as a Marital Settlement Agreement. The agreement is, essentially, a written and binding contract between the spouses in which they divide their assets, divide their debts, and resolve other financial issues. The agreement will address income tax issues, refinancing of debts to remove a spouse’s name from an assigned debt, and indemnification from one spouse to the other for debts allocated to each spouse. Indemnification is an agreement between spouses that grants a spouse the right to enforce the parties’ agreement for the payment of debts if the spouse assigned a debt fails to pay the obligation.
If the parties are unable to agree upon the division of their property, the court will assign to each party any sole and separate property belonging to him or her and will “fairly and equitably” divide the remaining community property. “Fair and equitable” will, in most instances, be approximately equal, unless the court finds an unequal division is appropriate. The Arizona Supreme Court in the seminal Toth v. Toth case upheld a trial court’s ruling of a substantially unequal division of community property, but the case warned that the facts of that case were unique and likely inapplicable to a vast majority of cases.
In yet another case, the Arizona Supreme Court in the case of Schwartz v. Schwartz ruled that a judge typically divides community property equally, but need not do so in all cases. The Schwartz ruling indicated the court could consider many factors to determine if an unequal division of community property is more equitable than an equal division of that property.
In a case dissimilar to the Toth case, the Arizona Supreme Court in the case of Hatch v. Hatch case reversed a trial court ruling that awarded the husband almost all of the community property because he was responsible for the accumulation of that property. It is fair to say that a spouse is not entitled to more of the community property because he or she was the spouse responsible for creating the wealth.
Many divorce decrees provide for a “catch all” provision that usually states that each party will be awarded all “other” personal property in his or her possession as his or her sole and separate property. The purpose of such language is to catch any assets that were not specifically described in the Decree. As you can imagine, it would be challenging to describe every item of property you own, so this type of provision may be helpful. However, there are some circumstances when a judge will reopen a divorce decree to reallocate assets mistakenly omitted in a final divorce decree.
You may wish to read our summary of the Arizona Court of Appeals ruling in the case of Ringear v. Rinegar wherein the court of appeals found it was appropriate to reopen the divorce decree to allocate the community property interest in the wife’s retirement account that was not divided in the order. The court of appeals expressly rejected wife’s argument that “each party retains all other personal property in their possession” dictated that the retirement account is awarded to her.
For more information on how you enforce a property settlement agreement, you may read our article on the Arizona Supreme Court’s decision in the Proffit v. Proffit case.
Federal and state law prohibits the division of military disability pay. The Arizona statute banning the division of military disability pay was passed into law in 2010. It prohibits both the division of military disability pay. It also prevents any court order that requires the service member to “make up” for lost retirement pay due to electing to receive disability pay, which is not divisible in an Arizona divorce, instead of regular retirement pay, which is divisible in an Arizona divorce.
The Arizona Supreme Court in the case of Howell v. Howell, however, distinguished application of the Arizona statute in cases in which a spouse of a service member was already awarded a portion of a service member’s military retirement before the enactment of the Arizona law in 2010. The Arizona Supreme Court reasoned that, in such situations, the spouse’s right to receive a portion of the military service member’s retirement had already “vested.” Therefore, a trial court may order a service member to “make up” the difference if the service member voluntarily reduces his or her retirement pay by selecting disability pay instead of retirement pay.
You should be aware that one of the reasons a military service member may elect to reduce the monthly amount he or she receives by selecting to receive disability pay instead of retirement pay is because unlike retirement pay, disability pay is not subject to income tax.
Sometimes people may forget to add a debt or asset to the division of their property in their divorce decree. Absent a valid argument otherwise, such as a spouse intentionally leaving an asset out of the divorce decree to defraud the other party, those debts and property are deemed by law to be held equally. The Arizona Court of Appeals in the case of Ellsworth v. Ellsworth discusses what happens in such situations.
Contact Our Scottsdale and Phoenix Arizona Community Property Attorneys
Call us at (480)947-4339 to schedule a consultation with one of our Scottsdale and Phoenix Arizona Community Property Attorneys regarding Arizona community property laws or any other Arizona family law matter.