This discussion of separate 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
Like community property, separate property
in Arizona is also specifically addressed by statute (A.R.S. § 25-213). This
statute essentially segregates as separate property any real and personal
property owned by the spouse before marriage and acquired by a spouse during
marriage by gift, devise or decent (and the increases, rents, issues and profits
of that property). This is the obvious converse of A.R.S. §25-211. In 1998, the
statute was amended to include property acquired by a spouse 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
Annulment. However, this statutory presumption can be altered by an agreement
between the spouses. Sellers v. Allstate Ins. Co. (1976) 113 Ariz. 419,
555 P.2d 1113. Very often these assets which are separate when brought into the
marriage appreciate over time due not only to market variations but also to the
owner spouse’s efforts. The increase in value due to the efforts of the owner
spouse would be considered community while the natural appreciation accruing outside
the owner spouse’s efforts would continue
to be deemed separate property. Everson v. Everson (App. Div.1 1975) 24
Ariz. App. 239, 537 P.2d 624. As one might
imagine, such a segregation of appreciation between community effort and
non-community factors lends itself less to a scientific analysis as it does to
the Court’s version of equitable distribution.
An example is found
in the 1979 case of Cockrill v. Cockrill (1979) 124 Ariz. 50, 601 P.2d
1334. Therein, the
appellate court determined that the trial court was not bound by a single method
of allocating between separate and community property the profits or
appreciations in value of the separate property during the marriage, but was
empowered to choose whatever method would achieve equity and justice between the
Further, case law holds
that the character of the property interest attaches at the time when the right
to obtain title occurs, not the time when legal title actually conveys.
Potthoff v. Potthoff (App. Div.1 1981) 128 Ariz. 557, 627 P.2d 708.
Moreover, the burden of proof is generally on the
party seeking to prove a separate property interest or continuation thereof
after marriage. When the value of a spouse’s separate property is increased,
the burden of proof is on the spouse who asserts that the appreciation is also
separate property. The test is actually whether the increase is the result of
the work effort of the community, either spouse thereof, or other non-community
factors, such as market trends.
Interestingly, where the
separate funds of a spouse has been used to purchase real property but title
thereto was placed in joint tenancy, a presumption arises that a gift to the
non-purchasing spouse was intended. The purchasing spouse has the burden of
proof then to establish by clear and convincing evidence that a gift was not
intended. Battist v. Battist (App. Div. 2 1983) 135 Ariz. 470, 662 P.2d
145. So the burden of proof is similar in gifting presumptions as it is in
recent case of State v. Wright (App. 2002) 202 Ariz. 255, 43 P.3d 203,
addresses not so unusual
circumstances involving a married couples’ modification of a premarital
agreement to change the husband’s earnings from separate to community in an
effort to protect future earnings from a creditor. Although the case did not
involve a divorce, it did hold that the modification of the premarital agreement
constituted a transfer under the Uniform Fraudulent Transfer Act, A.R.S. §
44-1001. In that case the creditors continuing garnishment lien against the
husband’s earnings was affirmed.
An interesting question that arises is perhaps
after the creditor is satisfied. What if the wife refuses to revisit the
premarital agreement modification at that time? Since the parties’ expressed
intent was to convert the husband’s future earnings into community property, the
wife might well successfully claim a community right to those future earnings
until some change is made. This is so especially in light of Bender v. Bender
(App. Div.1 1979) 123 Ariz. 90, 597 P.2d 993, which holds that
married couples are free to decide at any time what the status of their property
is to be as to separate or community, and may convey their separate or community
property interest to one another freely.
Arizona case law
has fairly uniformly ruled that property retains its status as either community
or separate despite exchange during marriage for other property. Everson v.
Everson (App. Div. I 1975) 24 Ariz. App. 239, 537 P.2d 624.
separate funds are placed in a joint account no presumption arises that the
depositor has intended a gift of one-half of the funds to the non-depositing
spouse. Bowart v. Bowart (1980) 128 Ariz. 331, 625 P.2d 920. See also
In re Marriage of Berger, (Ariz. App. Div I September 27, 1983) 140 Ariz.
156, 680 P.2d 1217.