Understanding Community Property


by Robert Michael Hersch,
Attorney at Law

 

Arizona is one of nine community property states in the United States. The others are California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

 

Community property can only exist if there is a valid marriage between the parties. Under Arizona law, unless the parties have entered into a pre-marital (or post-marital) written agreement, all property accumulated during the marriage is community property, except property acquired by way of a gift or through inheritance. In effect then it is the earnings of each party during the marriage that make up most of the community property.

 

Property that each spouse owned prior to the marriage (“separate property”) does not become community property as a result of getting married. However, if the non-owner spouse is thereafter added to the title as an owner, the property becomes joint property and subject to division at divorce or legal separation just like community property.

 

So, how does this work?

 

First, in the case of earnings, it does not matter if one spouse or the other makes more money. Think of it as all of the earnings going into a pot, and each spouse owns an undivided one-half of the family’s earnings.

 

Second, with certain exceptions, each spouse can manage the community assets on behalf of themselves and their spouse, meaning that either spouse can acquire, manage, control or dispose of community property without the consent of the other spouse, except that both spouses have to sign off in cases dealing with real estate, a lease of less than one year or with regard to a Guaranty of a debt.

 

What is a Guaranty of a debt? For example, a spouse may do business using a corporation or a limited liability company (LLC) that they control and enters into a contract in the name of that corporation or LLC. Frequently, the other party to the contract will require that the spouse sign a Guaranty of the contract or obligation in case the corporation or LLC ends up having no assets.

 

Finally, it’s important to know that a spouse’s separate property (owned before the marriage) is not liable for their spouse’s pre-marital debts. After the marriage, only the earnings of the spouse who incurred the pre-marital debt are liable for their pre-marital debt.