This discussion of community property is an excerpt from “Overview of Arizona Divorce Principles for Bankruptcy Practitioners”
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Table of Contents
B. Separate Property
C. Liability for Debts of Spouse
Jurisdiction to Control and
Dispose of Community and Separate Property Assets
Jurisdiction to Determine
Separate Property Rights
Jurisdiction Over Allocation and
Disposition of Debt
ERISA Retirement Plans and the
Community Property and the
I. Priority of Past Due Support Over
J. Protection of Dissolution and
Advisability of Joint Bankruptcy
Filing and Conflict of Interest Problems
Impact on Future Community
M. Impact of Discharge on Secured
Barring an express intent
of the parties to a marriage to consider their property differently, the law
generally covering community property under the marital and domestic relations
statute is A.R.S. § 25-211, which states:
acquired during marriage as community property, exceptions.
All property acquired by either husband or wife during the marriage is
the community property of the husband and wife except for property that is
(1) acquired by gift, devise or descent or (2) acquired after service of a
petition for dissolution of marriage, legal separation or annulment if the
petition results in a decree of dissolution of marriage, legal separation or
A.R.S. § 25-211 was
amended in 1998, essentially adding the subsection 2 above. While subsection 2
may have clarified the point at which the community terminated, it raised its
own questions regarding affixing valuation to community assets at the time of
service of such a petition, particularly where such assets experienced volatile
fluctuations in value after that time.
Further, once the presumption that an asset
exhibits a community nature affixes, the burden to disprove this presumption is
quite high. Case law holds that this presumption can be rebutted
only by nearly conclusive evidence. Kennedy v. Kennedy (1963) 93 Ariz.
252, 379 P.2d 966. Further case law adds that as long as there is any doubt, the
property acquired during the marriage must be presumed to be community property.
Porter v. Porter (1948) 67 Ariz. 273, 195 P.2d 132.
The burden of
overcoming, by clear and convincing evidence, the presumption that a debt
incurred or an asset acquired by a married person during the marriage is a
community obligation or asset, is on the party who contends a separate nature
thereto. Hofmann Co. v. Meisner (App. 1972)
17 Ariz. App.
263, 497 P.2d 83.
When separate and
community funds are mingled, commingled funds are presumed to be community
property and the burden is on the person claiming a separate nature, and
that burden is by clear and convincing evidence.
Rundle v. Winters (1939) 38 Ariz. 239. 298 P. 929, Cooper v. Cooper
(1981) 130 Ariz. 257, 635 P.2d 850.
This presumption applies
to the extent that the funds are so commingled that isolation of the funds
between separate and community is impracticable. Under those circumstances, the
whole account would be considered community funds.
Evans v. Evans (1955) 79 Ariz. 284. 288 P.2d 775. Cooper v. Cooper (1981) 130 Ariz. 257. 635 P.2d 850.
However, as long as the
funds remain traceable, the commingling of separate and community funds into a
single account does not necessarily transmute the entire account into a
community asset. If these funds remain traceable and distinctive from the
community funds, the law will not presume an intent by the owner of separate
funds to make a gift of one-half of those
funds to his or her spouse. Noble v. Noble
(App. Div. 1 1976) 26 Ariz. App. 89, 546 P.2d 358.
by a party prior to marriage retains its separate nature after marriage,
although that status can be altered by an agreement between the spouses.
Sellers v. Allstate Ins. Co. (1976) 113 Ariz. 419, 555 P.2d 1113. Further,
property acquired after marriage that is in exchange for separate property owned
before marriage retains its separate nature. Borne v. Lord (App. Div.2
Ariz. App. 228. 506 P.2d 268.
The parties are certainly free of course to modify
or completely eliminate their respective rights to community property through a
premarital agreement. Elia v. Pifer (App. Div.1 1998) 194 Ariz. 74. 977
P.2d 796. Further, a valid premarital agreement that does so precludes a
creditor of one spouse from proceeding against the separate property of the
other spouse, even on a claim that arose during the marriage. Elia v. Pifer, Id.
2. Real Property.
One of the vagaries
of Arizona law as it relates to community property is that property acquired by
husband and wife with community funds during the marriage involves real estate
taken by the parties as Joint Tenants with Right of Survivorship. Normally Joint
Tenancy with Right of Survivorship has been a popular method for a married
couple taking title to real estate in Arizona. Interestingly, under Arizona law
when the husband and wife take title to property as joint tenants, this counters
the presumption that the property is community and consequently the joint
tenancy status relegates to each spouse his or her separate property
interest therein. In re Murin, Bkrtcy. D.
Ariz. 2002. 283 B.R. 588; Ferree v. City of Yuma (App. Div.1 1979) 124
Ariz. 225, 603 P.2d 117.
Although the courts in
Arizona treat such property the same as community property for purposes of
dissolution of marriage, there is another form for taking title that is becoming
more popular in Arizona - Community Property with Right of Survivorship.
Although this form of taking title has gained in popularity, its popularity is
mainly a result of its tax treatment. As more of this type of interest by the
parties in their real property grows, you will likely see less of a technical
concern about separate funds enhancing joint tenancy property. Further, A.R.S.
§25-318 addresses the distribution rights in joint tenancy property for married
persons upon dissolution by directing that the court divide the community,
joint tenancy and other property held in common equitably, though not
necessarily in kind, without regard to marital misconduct. This statute further
incorporates as community property any property acquired by either spouse
outside of Arizona if the property would have been community property if
acquired in Arizona.
3. Gifts. The
gifting exception to A.R.S. § 25-211 generally becomes a practical issue only if
the value of the gift is substantial. Jewelry that has been acquired during coverture is presumed to be community property and a spouse seeking to dispute
that presumption again has to demonstrate the separate nature of the property by
clear and convincing evidence. Hrudka v. Hrudka (App. Div,. 1 1995) 186
Ariz. 84, 919 P.2d 179.
4. Personal Injuries. Recovery for personal
injuries incurred during coverture is considered separate property to the
extent that the recovery does not include a claim for lost wages, which would be
considered community property. Hatcher v. Hatcher (App. Div. 1
1996) 188 Ariz. 154, 933 P.2d 1222. Another aspect of a personal injury claim
that may be compensated is reimbursement for expenses for hospital and medical
care. Such losses and expenses are injuries to the community and recovery for
those items normally belongs to the community. Jurek v. Jurek (1980) 124
596. 606 P.2d 812.
5. Improvements to Property. So long as the land itself
retains its nature as separate property, any improvements by the other spouse or
by the community to that property does not convert the nature of the interest in
the property from separate to community, but simply allows a claim for
reimbursement of the expended funds. Bourne v. Lord, Id., Kingsbery v.
Kingsbery (1963) 93 Ariz. 217, 379 P.2d 893: Rothman v. Rumbeck
(1939) 54 Ariz. 443. 96 P.2 755. In one case, the court held that to the extent
that the spouse’s community efforts to improve his own separate real property,
increased the value thereof, any such increase in the value occasioned thereby
would be community property. Potthoff v. Potthoff (App. Div.1 1981) 128
Ariz. 557. 627 P.2d 708. The obvious difficulty would be both in establishing the relative value
of the unimproved property prior to the spouses’ community efforts in improving
its value and the impact of other market economic factors.
6. A.R.S. § 25-217.
What about property that is acquired in Arizona during the marriage by persons
married outside of the state who eventually move into Arizona? Resort to case
law is unnecessary in this fact scenario since A.R.S. § 25-217 specifically
addresses the fact that such property will be controlled by the laws of Arizona.