Living in Arizona means that (hopefully) you have heard of the term ‘community property’. Did you know that most states don’t actually define and follow community property laws? The property management services have addressed it many times. In fact, there are only nine states that currently follow community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Additionally, Alaska allows community property laws by agreement. The rest of the states follow common law. But here in Arizona, it is important to know what community property is and how it is different from separate property.
The most important times that people need to understand about community property are 1. When they get married, 2. When they get divorced or legally separate, 3. When they have a marriage annulled, 4. When they move to a different state, 5. When they are facing a legal issue with liability questions (e.g. being sued because of an auto accident), and 6. When a family member or close friend dies. Community property laws can even help spouses avoid probate!
So what is community property? In a community property state written in an official statement, the law assumes that all assets belonging to a married couple are jointly owned by both partners. Additionally, the law understands that most property acquired during a marriage is considered to be jointly owned by both partners and is only divided upon death, divorce, or annulment. If you want it to be otherwise, you need to put protections in place to keep property separate.
Some examples of community property in a marriage are wages, salaries (including self-employment income), housing, cars, etc. Additionally, any investment income from assets that are community property is considered community property- such as interest or dividend growth in a joint bank account.
In a community property state like Arizona, we also must know what separate property is. Every state works with separate property, and in most states assets are owned by whoever’s name appears on the deed, title, or registration. However, in a community property state, separate property is property that is considered to be owned by one spouse only. It is usually property that a spouse brings into a marriage or receives as a specific gift or inheritance during the marriage. It is never to be shared or used to benefit the marriage in any way or it can be converted into community property.
Sometimes separate property can be converted into community property (or vice versa). For example, suppose you have a separate bank account before your marriage, but then you both start regularly putting marital funds in that account. The account itself, as well as your prior funds, may be converted into community property. Or, on the other hand, suppose you buy a second home as community property with community assets, but after a few years, you and your spouse negotiate an agreement where one of you will disclaim any and all interest in the property from that point forward. Additionally, no further community assets go toward the property. The second home then has been converted into separate property.
There are some protections you can put in place to protect property that you would like to keep separate from your spouse. For example, before a marriage, you and your partner can sign a pre-nuptial agreement that defines what property will be kept separate. After a marriage, you and your spouse can sign a post-nuptial agreement to do the same. For example, if one spouse inherits land from a parent that they would like to keep as separate property but have to put marital funds towards the upkeep of the property, both spouses may agree in writing to keep that land as separate property despite the marriage benefitting the land.
If you have questions on your property and whether it is considered separate or community property, please contact The Carroll Law Firm at 623-551-9366!
