In an Arizona divorce, the law does not require that each marital asset be divided equally between the husband and wife. Likewise, the law does not require that each marital asset be sold, with the proceeds divided equally between the parties. Rather, the law simply requires that all marital assets be divided “equitably, though not necessarily in kind . . . .” A.R.S. Sec. 25-318.A.
When dividing assets in an Arizona divorce, the Court first identifies all sole and separate property, which is property acquired by a spouse before marriage or property acquired by a spouse during the marriage by gift, devise or descent. A.R.S. Sec. 25-213.A. Sole and separate property is not divisible in an Arizona divorce but is affirmed to the spouse who brought the property into the marriage or who acquired it by gift, devise or descent during the marriage. The remaining property acquired during the marriage is normally considered to be community property and is divisible in an Arizona divorce. A.R.S. Sec. 25-211.A.
Disregarding sole and separate property, the Court in an Arizona divorce generally divides the community property and debts such that each party has roughly the same net worth after the divorce. As an example, assume the parties’ marital property estate consists of a home with $100,000 equity ($250,000 value less a $150,000 mortgage), a 401k worth $125,000 and cash bank accounts of $75,000. The total net value of the estate is $300,000 ($250,000 home + $125,000 401k + $75,000 cash = $450,000, less $150,000 mortgage = $300,000).
In this scenario, the Court is NOT obligated by law to order the 401k and cash accounts equally divided and/or the home sold with the net proceeds equally divided. Instead, the Court could award the home and the mortgage debt to one spouse, along with $50,000 of the cash. The other spouse would receive the 401k and $25,000 cash. The spouse who is awarded the home receives $300,000 in assets and $150,000 in debts. The other spouse receives $150,000 in assets and no debt. Each spouse receives net value of $150,000. The spouse awarded the home receives $100,000 in home equity plus $50,000 cash. The other spouse receives a 401k worth $125,000 plus $25,000 cash.
I recognize that this example is overly simplistic. It is offered for illustrative purposes only. In a real case there would likely be more than three assets and one debt. Furthermore, in a real case the Court would or should take into account the taxation of different asset types. A.R.S. Sec. 25-318.B. For example, a tax-deferred 401k cannot be treated the same as home equity, which is tax-exempt in many home sales. Nevertheless, after taking all marital assets, debts and tax issues into consideration, an Arizona divorce Court will order a division of the marital property and debts that is fair overall. The Court will NOT divide each and every asset equally between the husband and wife.
On March 1, 2013, the Arizona Supreme Court held that the same principle applies when one spouse dies. See In re the Estate of Fred N. Kirkes. In the Kirkes case, Fred Kirkes died, leaving most of his community property IRA via beneficiary designation to his son from a previous marriage. Mr. Kirkes’s widow, Gail Kirkes, sued for 50% of the IRA. The trial court agreed with Gail, but the Court of Appeals reversed, holding that as long as Gail received at least 50% of the community property overall, which she did, she was not entitled to 50% of each individual asset (i.e., the IRA). The Arizona Supreme Court affirmed the Court of Appeals’ ruling, thereby adopting essentially the same rule in Arizona probate cases as applies in Arizona divorce cases.
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