Freezing Assets in Divorce Cases

A common misconception among my clients is that all marital assets are automatically “frozen” when a divorce is filed.  They are not.  When an Arizona divorce is filed, the court issues an order prohibiting the parties from “transferring, encumbering, concealing, selling or otherwise disposing of any of the joint, common or community property of the parties . . . .”  A.R.S. Sec. 25-315 A.

This order, called the “preliminary injunction”,  is not binding on banks or other financial institutions.   The preliminary injunction is directed to the husband and wife, not to third parties.  If one spouse chooses to violate the preliminary injunction by transferring funds out of a bank account  in an attempt to hide the funds, the bank is under no obligation to stop the transfer.  In fact, the bank will likely not even have notice of the preliminary injunction.

Obtaining an order from the divorce court directing a financial institution to “freeze” an account to prevent one or both spouses from draining an account would be quite complicated, but not necessarily impossible.  First, the financial institution would have to be joined as a party to the case.  See Rule 33 C., Arizona Rules of Family Law Procedure (“ARFLP”).   This is because a judge is generally only permitted to make orders against parties to the case before her.  She cannot issue orders against other individuals or entities who are not parties to the case as this would be a denial of due process.

Once the financial institution in question were joined as a party to the case, one spouse would next have to file a motion for a temporary order requesting that the court order the institution to freeze the funds it is holding for the parties to the divorce.  See Rule 47, ARFLP.  Each party, including the financial institution, would then have the opportunity to present evidence at a hearing as to why the account should be frozen or not.  A temporary order without notice will only be granted if affidavits submitted with a motion for emergency temporary order without notice establish that irreparable harm will occur if the order is not issued.  See Rule 48, ARFLP.

Because it would be difficult, time-consuming and expensive to obtain a court order directing a financial institution to freeze accounts, most parties to Arizona divorce cases do not pursue such orders.  Instead, one party may simply send letters to the parties’ banks and other financial institutions  informing them that a divorce is in process and requesting that they not disburse funds to either party pending an agreement or a court order.  The letter could be accompanied by a copy of the preliminary injunction.  Although the bank would not be obligated to honor such a request, it might.

In addition, if one spouse violates the preliminary injunction by transferring or concealing assets, the other spouse may file a motion with the court asking the court to hold the violator in contempt of court.  This threat of contempt and the possibility of being stuck paying a portion of the other party’s fees is often sufficient to deter both parties from draining accounts in violation of the preliminary injunction.

Finally, even if one spouse moves money in violation of the preliminary injunction, these transfers are usually rectified and reconciled in the final division of assets.  Account statements obtained from the parties’ financial institutions will clearly show the account balances as of the date of the filing/service of the divorce and any transfers made thereafter.  The balances as of filing/service are the amounts the court will order be divided between the parties, not the funds remaining after one party drained accounts.  For example, if the husband pulls $10,000 in community funds out of a bank account after he is served with the divorce papers, the judge could award the wife $10,000 “off the top” of another account/asset to compensate her for the funds the husband took for himself.

There are limited circumstances where marital funds can be withdrawn from bank accounts and spent after the preliminary injunction takes effect.  It is NOT a violation of the preliminary injunction to use marital property/funds “related to the usual course of business,