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Arizona Property Division: Community Property Vs. Separate Property and Debt

A.R.S. 25-215 defines how community and separate property will be used to pay community and separate debts.  Any person who initiates a separation proceeding needs to know how to define their property, and how it will be used to settle outstanding bills.
Separate Property
What is separate property, and who defines it?  According to Arizona law, separate property falls into the following categories:

  • Property each spouse owned before marriage, or acquired after the filing for separation which led to a divorce.
  • Property which was acquired by gift, bequest or inheritance through intestacy (your wealthy great grand uncle died without a will).

The general rule is that separate property of one spouse cannot be used to pay the separate debts of the other.  That raises a question:  can creditors attach your separate property to pay for a community debt?
In many cases, the creditor can file suit against both spouses for a community debt.  The party has two options:  file an answer stating why they should not be held liable for that debt, or pay the debt and sue the other spouse to recover the payment.  If a Divorce settlement has allocated debt payment to one former spouse, and that spouse fails to pay, they have violated a court order and can be liable for contempt of court.
Exceptions to the rule
Separate property and community debt is as intricate as a spider web.  Pre-nuptial agreements may have clauses allowing separate property or debts to be treated as community property.  Once the spouses decide to end their marriage, they are free to negotiate a settlement, dividing the property and paying off debts. In other words, the parties can change the statutory rules by contract, as long as the contract is fair and reasonable.
Another Statutory Pothole.
Paragraph B presents a situation where community property can be used to pay a separate debt incurred before the marriage, as long as it was incurred after September 1, 1973.  It does set up a limitation—the community property will only pay a certain amount—the percent of the debt that would be deemed separate property if the spouse were single.  That means the spouse who incurred a debt only gets a partial settlement from community property.   The debtor will have to look for other ways to collect the remaining amount.
When Is One Spouse Liable for the other’s Separate Debt?
Generally, debts entered into before the marriage remain the separate property of each spouse, and do not form part of the community property.  Their creditors are unable to reach one party’s separate property in order to pay the other’s separate debt.  That is why it is so important that Arizona residents know the nature of their assets and debts before filing a petition for separation.  It would be ideal if there is full communication and disclosure, because assumptions and misunderstandings will only lead to financial problems.

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