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Legal Considerations When Dividing Debt and Assets During Divorce
When you are going through a divorce, you may deal with a number of family law issues, such as deciding on child support or custody arrangements. Another common issue divorcing couples must face is the disposition of property. Arizona law includes some information about how assets and debts are divided, and couples often have some freedom to create their own agreements if possible.
Community Property and Separate Property
The first concept to understand when dividing property in Arizona is the difference between community property and separate property.
Arizona is a community property state, which means any property you obtain during marriage is considered community property—that means it belongs to both spouses. Property you obtained before you were married is considered separate property unless you commingle it purposefully.
There are some exceptions. Certain types of gifts and inheritances are exceptions to the community property rule. If you have a premarital agreement that abides by Arizona law and is valid in the state, it may also create exceptions to the community property rule.
The Equitable Distribution Principle
Many community property states require an equal distribution of community property during a divorce if a court is distributing property because the individuals cannot come to an agreement. However, Arizona law allows a bit more leeway. The courts are typically supposed to divide property in a way that is fair, but that doesn’t necessarily mean the assets are divided exactly down the middle. However, the typical outcome is that the division ends up being about equal for either side.
The Importance of Asset Valuation
To establish a fair division of property—or as part of your negotiations as you work to divide property without asking the court to intervene—you may need to engage in asset valuation. It can be important to get accurate appraisals and valuations for property so that you know what you are dealing with. This can involve asking knowledgeable third parties to review assets. For example, you might have an art expert appraise a fine art collection or a jeweler appraise any fine jewelry you own.
Some Common Methods for Splitting Certain Kinds of Property
Some properties are easier to split than others. If you have $2,000 in a joint checking account and want to split assets down the middle, for instance, it’s pretty easy to take $1,000 each. That’s not the case with real estate, personal items, and other assets.
Real Estate
If you own land or a home together, you may need to create a plan for dividing this asset. How you go about it can depend on whether you own it outright or have a mortgage and whether one of you wants to retain ownership. Some options for dealing with real estate during a divorce include:
- Selling the asset so the mortgage is paid off and splitting any remaining amount
- Converting property you own outright to cash by selling it so you can split the proceeds
- One of you buying the other out of the property, which may require the remaining owner to refinance any mortgage
You might approach joint ownership of other large assets, such as vehicles, in the same manner.
Personal Property
Personal property, such as clothing, jewelry, small appliances, and even furniture, can take a bit of discussion to split up, and it certainly helps if you are able to cooperate regarding your divorce. You might agree on a split of the kitchen wear and small appliances that fit each person’s habits and personalities, for example. Each person may take the items to which they are most attached. Another option is to sell items via online auctions, consignment shops, or a garage sale and split the proceeds.
Retirement Accounts
Retirement accounts can require specific consideration because you may need to withdraw funds in order to split these assets. To do this without taking a tax hit on the early withdrawal, you may need to use something called a qualified domestic relationship order, or QDRO.
This allows you to receive funds from a retirement account that is being divided in a divorce so you can put those funds into a qualifying retirement account for yourself.
Allocation of Debts
You also need to split your debts unless you intend to work together in the future to pay them off. If you have debts in both of your names, the cleanest method is to close those accounts by paying off the balances. If you don’t have the cash on hand to do that, you might consider whether you can each refinance the debts you are taking on in your names, though this isn’t always possible.
No matter what you do, divorce tends to have a temporary negative impact on your credit score. It’s a good idea to monitor your credit during and after divorce so you understand the impact and can work to improve your score.
How a Family Law Attorney Can Help
Property division during a divorce can be complex, even if you and your spouse are working well together. A family law attorney can take some of this work off your shoulders and provide guidance about setting up property division in a way that will reduce future challenges.
They can also fight for your interests regarding property division if a divorce is or becomes contentious. Call The Turner Law Firm, PLLC, at 623-253-8718 to set up an appointment to discuss your divorce needs.
