Marital Property: Do’s and Don’ts

You and your partner have likely discussed how you will combine your property if you are planning to get married. For example, one of you may decide to vacate the apartment and host a garage sale to dispose of excess kitchen equipment or furniture. However, it may be prudent to consider how this property will be divided in the event of a divorce, as well as the fundamentals of managing your marital property.

When a couple divorces, the marital property (that which was acquired during the marriage or was otherwise shared) is divided in accordance with the state’s law regarding the division of marital property. A few states have “community property” laws that result in an approximately 50/50 division of marital assets. When dividing marital property, the majority of states use a “equitable distribution” procedure that takes into account the needs and assets of each spouse.

Regardless of your state’s laws and your family’s unique circumstances, the following tips will assist you in deciding how to manage your marital property most effectively.

The concept of marital property becomes significant upon marriage, despite the fact that the issue rarely arises in everyday life. All possessions and interests acquired by a couple during their marriage are referred to as “marital property.” Most married couples do not even consider understanding or keeping track of their marital property. However, if a divorce becomes a reality, ownership questions arise.

Arizona Marital Property Definition

Arizona is one of the few states that follows a community property approach to classifying marital property, as opposed to the majority of states that use an equitable distribution approach. The term “community property” refers to all property acquired during the marriage that is owned equally by both spouses and therefore will be divided equally upon divorce. In contrast, equitable distribution divides the marital estate in a “fair” manner, giving the court greater discretion to determine what is fair.

A Glance at Arizona’s Marital Property Laws

Statutes are the best source of information, but they are typically not written in a user-friendly manner. Consequently, it can be beneficial to also read a summary of the statute written in plain English. In the table below, you will find an overview of Arizona’s marital property laws as well as links to relevant statutes.

Statute(s)

25-211 et seq., Title 25, Chapter 2, Article 2, Arizona Revised Statutes (Property Rights and Contract Powers)

Is Community Property Acknowledged?

Yes

What is considered common property?

All property acquired by either spouse during the marriage, with the exception of property acquired by only one spouse:

As a gift or bequest; or

After service of a divorce, legal separation, or annulment petition (as long as the petition results in a decree).

What is considered to be separate property?

In addition to the exceptions listed above, real and personal property owned by one spouse prior to the marriage, as well as any rent, profit, or appreciation in value, are considered separate property.

What You Should Do to Manage Marital Property

Consider entering into a prenuptial or premarital agreement prior to marriage to specify which assets are exempt from division in the event of death or divorce.

Do keep accurate and comprehensive books and records to establish the separate nature of any property you wish to keep separate from the marital estate. You may wish to maintain separate ownership of property you owned prior to marriage, as well as gifts or inheritances you receive during the marriage.

If you’re concerned about keeping your separate property in your family (or as your personal asset) after your death or divorce, continue to keep it separate throughout your marriage. This generally means that you should not “commingle” property you owned prior to marriage with property you and your spouse acquire during the marriage, or it may become difficult — if not impossible — to legally determine whether the property in question is separate or marital.

Be aware that the increase in value of nonmarital property may be deemed marital, entitling each spouse to a portion of the increase upon divorce or death of the property owner. This is particularly true if the increase in value (or “appreciation”) is considered “active” as opposed to “passive.” For example, passive appreciation is the increase in value of a bank account due to interest earned or the increase in property value due to standard inflation. Active appreciation, on the other hand, is the result of effort, such as painting a rental property or actively managing a stock portfolio.

Use only your separate property to acquire additional property that you want to be considered separate. In other words, a boat purchased with pre-marriage funds and maintained in a separate account after the marriage is considered separate or non-marital property. However, if your spouse pays for a portion of it or even helps maintain it, the boat may no longer qualify as separate property.

If you wish for the proceeds of any personal injury case won during the marriage to retain their status as separate property, you must keep them separate. The money you receive from a personal injury lawsuit belongs solely to you, with the exception of any portion that reimburses you for lost wages or compensates your spouse for the loss of your services or companionship.

Managing Marital Property: Avoid These Mistakes

If you use separate funds to pay off a joint debt, those funds may lose their separate status.

Do not deposit income earned during the marriage into separate bank accounts. Generally speaking, income earned during a marriage is considered marital property, and depositing that income into non-marital accounts can result in “commingling,” so that the non-marital account is no longer considered separate property.

Even if you intend to keep track of which portion is separate, do not open a joint bank account with non-marital funds. If you want to keep non-marital assets separate, it’s much more prudent to maintain separate accounts.

Do not assume that if you owned property before your marriage, none of it will be considered marital property. For instance, if the value of the home you owned prior to the marriage increases during the marriage due to your and your spouse’s efforts to maintain and improve it, your spouse may be entitled to a portion of that increase.

Do not assume that a business you owned prior to marriage will remain solely your separate property after marriage. If the value of your business or professional practice increases during your marriage due in part to your spouse’s contributions, your spouse may be entitled to a portion of the increase upon divorce or your death. These contributions can be overt, such as bookkeeping or entertaining clients, or covert, such as caring for the home and children so that you can focus on running the business.

Obtain Expert Assistance in Managing Your Marital Property

Generally, marital property is not an issue unless a couple is divorcing, but it could be a factor in a prenuptial agreement or other situations. If you have any legal questions regarding marital property, you should seek professional legal assistance. Find a local family law attorney and obtain peace of mind.