What is Separate Property in Arizona?
Separate property in Arizona is generally classified as any property owned by a spouse before marriage or any property owned by a spouse after a divorce decree has been finalized. Property that is gained by a spouse through inheritance or gift will be that spouse’s sole and separate property, regardless if received before, during, or after a divorce.
The increase or decrease in the value of a spouse’s separate property is also the separate property of the spouse who owns that property. Separate property can be difficult to determine because there are oftentimes complex legal variables involved such as community liens against a spouse’s separate property, transmutation of separate property into community property, commingling of separate property with community property, and the tracing of separate property which were commingled with community funds.
Commingling Separate Property With Community Property in Arizona
Commingling separate property with community property in Arizona simply occurs when someone mixes their separate property with community property. The best example is if someone has money in an account before marriage (separate property) and deposits that money in an account in which monies earned during the marriage (community property) are held. If a proper accounting is not done, the separate funds lose their separate status and become community property.
The Arizona Court of Appeals in the case of Kingsberry v Kingsberry discussed the issue of commingling separate property with community property and that the commingling of community and separate funds does not automatically turn separate property into community property if the proper tracing of money can distinguish the two types of property.
The Arizona Supreme Court also addressed the issue of commingling in the cases of Franklin v. Franklin and Porter v. Porter. The rulings in the Franklin and Porter cases provide several good examples of how commingling occurs and, therefore, how to avoid such problems.
Tracing Separate Property in a Commingled Account
The spouse who has separate property must clearly allege all items of separate property and be able to prove by clear and convincing evidence that such property is his or her separate property. The Arizona Court of Appeals in the case of Hofstra v. Hofstra held that a spouse who either admits all property is community property and/or fails to timely allege certain property is sole and separate property waives the right to make the claim at trial.
Transmuting Separate Property Into Community Property
Arizona community property laws also permit a claim that a spouse has transmuted their separate property into community property. This concept is similar to commingling. A person transmutes their separate property into community property when they demonstrate an intention to give their separate property to the community. A good example of this is when a spouse uses their sole and separate money to purchase a home that is then titled in the name of both spouses.
The Arizona Court of Appeals in the case of Noble v. Noble discussed how separate property can turn into community property. In the Noble case, the wife used her separate property to purchase two properties, which she titled in both her and her husband’s name. That act changed her separate property interests into a community property asset.
Community Liens For Increase in Value of a Separate Asset in Arizona
Arizona community property laws permit a spouse to claim a community lien against the other spouse’s sole and separate property. A community lien exists, generally, when either community property or community efforts increase the value of a spouse’s separate property. A community lien does not exist, for example, if the value of the asset naturally increased in value due to market or other conditions. There are many scenarios that may create a community lien, so consult with a knowledgeable attorney for advice on your specific situation.
The Arizona Supreme Court in the cases of Cockrill v. Cockrill and Nace v. Nace discussed the issue of whether the increase in value of separate property during a marriage created a community lien against the separate property. The distinction is that any increase in value of the separate property due to the efforts of the spouse(s) during the marriage is community property to be divided by the trial court.
The Arizona Court of Appeals decision in Baum v. Baum addressed whether the increase in the value of the stock of a sole and separate business could be considered community property. The Court of Appeals followed the same reasoning as it did with profits from a sole and separate business in other cases, which is it depends upon whether the increase was due to the efforts of either spouse and whether the community has already been fairly compensated for those efforts through salary or other payments to the community.
Another business related case was decided by the Arizona Court of Appeals in the case of Guthrie v. Guthrie. The Court of Appeals in the Guthrie case discussed the balancing of the increased value of the business, the amount the couple received from the business, and whether a community lien should, given those factors as well as others, be granted.
Contact Our Scottsdale Arizona Community Property Attorneys
Call us at (480) 305-8300 to schedule a consultation with one of our Scottsdale Arizona Community Property Attorneys regarding Arizona community property laws or any other Arizona family law matter.