AZ Community Property, Commingling and Cooties
Written by: Stefano Ceroni
Even if they know and understand AZ community property laws, divorcing couples often assume that if a party owns a financial account or vehicle that is solely in one person’s name, the spouse has no rightful claim to that asset.
Unfortunately, these people have once again forgotten the true definition of the word ASS-U-ME.
That’s right, when you assume, you always make an A$$ out of both U and ME. That’s because according to AZ community property laws, both parties are entitled to an equitable share of all assets (and debts) acquired during the marriage regardless of whose name the asset (or debt) is in.
Now, as with any good rule, there are a few noteworthy exceptions. Under AZ community property laws, any property that is acquired either by gift, devise or descent (even if it is acquired during the marriage) is considered the acquiring party’s sole and separate property.
BUT, the discussion on sole and separate property does not stop there. This is because in Arizona, as well as many other community property states, sole and separate property does not always maintain it’s sole and separate character. In fact, it can very easily be transformed into community property without the parties ever realizing it.
For example, let’s say you inherit $10,000 in cash from your father’s estate during your marriage. Well, as we already know, that $10,000 is your sole and separate property according to AZ community property laws on the topic. But wait! What if you deposit that $10,000 into a bank account that you set up in your name only? Well, at that point, it’s still your sole and separate property. But wait one more second! What if you start to put your pay checks into that bank account and start using those funds to pay for groceries and home repairs? Well, now you’ve started down the scary and unpredictable path that is known in Arizona law as “commingling.”
When a party commingles his or her sole and separate property with community property, that person runs the risk of having a court consider the entire property to have been “transmuted.” What the heck does that mean? Essentially, it means you have mixed-up the sole and separate property with the community property so much that nobody can decipher what funds are sole and separate and what funds are community. When this happens, AZ community property laws require that the entire asset now be deemed 100% community (unless the sole and separate funds can be “traced” through an often expensive, lengthy process). If the funds cannot be traced, your rights to that $10,000 bucks just got cut in half.
SO…the bottom line is this: to prevent your sole and separate property from ever being transformed into community property, keep it as far away from any community assets as possible.
Just think about it like an 8 year girl would. In AZ, Community Property has “cooties”! And, we all know–you never want to get tagged with that.