How does property and debt get divided during a divorce?
When you and your spouse start considering divorce, it can be overwhelming to start thinking about the division of property. Our paralegal team has decades of experience preparing documents for an Arizona divorce and we can ensure that your paperwork will be properly organized and filed at both our Pima County and Maricopa county offices. So too help ease feelings of uncertainty, I want to cover some of the common concerns and questions people have about what happens to property and debt during a divorce.
First and foremost, Arizona is a community property sate which means that spouses for the most part share equal ownership of whatever they earn, purchase, acquired, paid for during the marriage. Even if only one spouse utilizes the property, or if only one of the spouses paid for it, or whose name is on the title, if the property was acquired during the marriage, it most likely belongs to both spouses equally. During the divorce proceedings, community property will generally be divided equitably not necessarily equally between each spouse although there are certain belongings considered separate property.
In Arizona, community property is all property acquired by either spouse during the marriage. Examples of community property in Arizona can include the following:
- Bank accounts (joint and separate accounts)
- Personal property such as furniture, pets, household appliances
- Motor vehicles such as automotives, boats, motorcycles, mobile homes, RV’s trailers
- Real estate
- Life insurance policies
- Business interests
- Credit card debts
- Student loans
- Auto loans
- Home mortgages
Property that is exempt from community property during a marriage:
- Property acquired by gift, devise or descent.
- Property acquired after service of a petition for dissolution of marriage, legal separation, or annulment and petition results in dissolution.
Separate property that is a “spouse’s real and personal property that is owned by that spouse before marriage and that is acquired by that spouse during the marriage by gift, devise, descent, and the increase rents, issues, and profits of that property is the separate property of that spouse.” For example, gifts or inheritances given solely to one spouse, personal injury awards received by a spouse, and proceeds of a pension that was vested before the marriage are all considered separate property. If a spouse also purchases anything with these separate funds, it is that spouses separate property. For the most part, if you acquire anything after the petition of dissolution of marriage is served to Respondent this is also considered separate property.
Business property. A spouse can come into the marriage with their own business and this will remain separate property unless the business increases in value during the marriage or the other spouse also works at the business then a portion of the business may be considered community property. When spouses come to the marriage with separate property and is comingled with community property it may become community property in part or completely. It all depends on the circumstances. Same goes for purchases made with a combination of community and separate funds, it can be considered part-community/part-separate property.
Retirement Benefits. During a divorce proceeding, there are various ways that retirement benefits are divided up. It all depends on the type of retirement plan. There are a number of acronyms and abbreviations that are used and I will explain those here. The two types of pension plans are defined benefit plans and contribution plans. The defined benefit plan is a plan that promises to employees a specific benefit at the time of retirement. The benefit may include a definite dollar amount or a computation based on salary and years of service. Defined benefit plans only represent 10% of plans enrolled by private sector employees. The defined contribution plan does not promise a set amount at retirement but rather employers and employees contribute to the plan, which are then invested upon on behalf of the employee. The defined contribution plan fluctuates and is dependent on the performances of the investments made. There is a few other private pension plans or combinations of the above two but the above two are the most common.
When you are going through divorce proceedings and one spouse is enrolled in a private pension, the spouse that is not enrolled can use a Qualified Domestic Relations Order (QDRO) to establish a legal right to retirement plan proceeds. The QDRO “is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant” (irs.gov). The Employee Retirement Income Security Act (ERISA) sets in place the requirements of a QDRO despite the fact that divorce proceeding are governed by state law and take place in state court. When the QDRO meets all the requirements, it must be honored and award the corresponding retirement benefits to the former spouse.
The QDRO must contain certain specific information:
- Name and last knowing mailing address of the member
- Name and last known mailing address of each alternate payee covered by the order.
- Method of determining the amount of the member’s severance, survivor or retirement benefits to be paid by ASRS to each alternate payee covered by the order.
- Number of payments or period to which the order applies.
Because QDRO’s are specifically for private ERISA plans, government sponsored retirement plans like Federal Employees Retirement System (FERS) or the Arizona State Retirement System (ASRS) are handled using a separate process.
In FERS, ASRS, and other non-private plans like the Civil Service Retirement System and Thrift Savings Plans, a Court Order Acceptable for Processing (COAP) is used to establish legal right to retirement funds for the former spouse of an enrolled employee.
Because we are in Arizona, the Arizona State Retirement System (ASRS) is another common retirement plan that we come across. In the ASRS handbook it states the following: “(i)f you are married during anytime that you are an actively contributing member of the ASRS, you spouse may be entitled to a portion of your account or retirement benefit if you divorce. Because Arizona is a community property state, property acquired during a marriage belongs to the ‘community’ of the marriage, not to an individual as that person’s separate property. All or a portion of your ASRS account or benefits may be a community property asset.”
How the Petitioner and Respondent request a division of Property and Debt
The Petitioner in the Petition for Dissolution of Marriage requests that the court order a division of property and debt in congruence to the Petitioners statement about community property acquired during the marriage, types of separate property, whether debts were incurred during the marriage or the existence of separate debt. The petition includes a list of all property including its value and which spouse the Petitioner requests that it be awarded. This goes for separate property as well. For community and separate debts, the list will include a description, amount owed, and who should be considered the owner of the debt.
When spouses have already been separated for some time and divided up their property, some counties allow the Petitioner to request that community property be divided based on each parties possession at the time the Petition for Dissolution of Marriage is served.
The Respondent when they file the Response can agree with the Petitioners proposed division of property or can ask the court for a different division. If the Respondent does not agree, they too have the opportunity to list what they consider to be community and separate property along with community and separate debts and how each should be allocated.
There is protection under Arizona Law in the case that a spouse hides or disposes of community property during the divorce process. ARS 25-315 states, “In all actions for dissolution of marriage, for legal separation or for annulment, the clerk of the court shall pursuant to order of the superior court issue a preliminary injunction…both parties are enjoined from transferring, encumbering, concealing, selling or otherwise disposing of any of the joint, common or community property of the parties except if related to the usual course of business, the necessities of life or court fees and reasonable attorney fees associated with an action filed under this article, without written consent of the parties or the permission of the court.”
Under this stipulation, once the Petition for Dissolution of Marriage has been filed and served to the Respondent, neither spouse can hide, sell, or dispose of community property without the written consent of the other spouse or permission of the court. The only exception the law permits are those stipulated in the article about everyday business, court and attorney fees associated with divorce proceedings.
Court determination of property/debt division. The court will generally approve the division of property when both spouses agree. If you do not agree on this or any other part of the divorce proceedings, your case will go to trial. The trial is the opportunity for both sides to share with the judge their requests and the judge will make the final decision about an equitable division of property. The judge may order to have items awarded to a particular spouse or order contested property be sold and earnings divided between each spouse.
AZ Statewide Paralegal offers professional legal document preparation services. We have decades of experience preparing documents for divorces in Arizona. By using our service you can avoid the expense of a high priced attorney so that you can focus your resources and emotional energy into helping your family make the necessary transitions after the divorce. You don’t have to worry about deadlines and the insecurity of whether or not you properly completed the petition. Contact our office in Tucson, Phoenix, Mesa so that we can walk you through this process or answer any questions.