August 2016 – Community property state

Often times in a divorce, a couple’s largest asset is their house. Despite this fact, many people do not know (or don’t fully understand) the affect their title can have on their property rights when they divorce.

Most people are aware that Arizona is a community property state and that all property they acquire during the marriage is presumed to be community. What people don’t realize is that there are special rules for real property, such as your home, vacation property, time shares, rental and other investment properties. Regardless of when the property was purchased (before, during, or after marriage), ownership of the property is usually controlled by what your deed says. This rule can have a serious and unexpected impact on the way the property is distributed in a divorce.

For example, if a spouse owns a home before marriage, but later titles the property in both parties’ names, the property will likely be treated as community property in a divorce. This means that the pre-marital investment (including the initial down payment) is a gift to the community. Many people are surprised that they will not be compensated or reimbursed for their initial investment when they divorce.

The same is true when title to property is taken solely in one spouse’s name during the marriage. Couples frequently decide to have one spouse purchase the property in their name due to credit or other debt considerations. Regardless of whether community property is used for the down payment and monthly mortgage payments, the property will be the sole and separate property of titled spouse if the other spouse has signed a disclaimer deed. While the community may have a right to some reimbursement for monies paid toward the house during the marriage, this amount is usually significantly less than if the property had been titled jointly at the time of purchase or re-titled shortly after the purchase.

As a result, it is extremely important for couples to understand that how they take title of real property can affect their rights. For more information on owning real estate in a community property state, look for our upcoming blog series this month which will focus on ways to hold property in Arizona, community reimbursement or lien, and refinancing.