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Asset Protection in a Divorce

Protecting Your Assets in Divorce

What will happen with your property if you get a divorce? This is a common question among those who are thinking about getting married, as well as those who are already married and who are contemplating divorce. They want to know what will happen with the items they own and what they may have brought with them into the marriage. It’s important to have an understanding of the different types of property in Arizona first, before learning asset protection in a divorce.

What is Community Property?

All of the property that is acquired during a marriage is considered to belong to the community. Each person in the marriage has full authority to act on behalf of and bind the community. This will include property, as well as debt, that is accrued during the marriage. In a community property state, this means that each person has the authority to spend the money. This is true even when one spouse doesn’t like how the money is being spent. Each party can do whatever they want with the money.

What About Separate Property?

If the property was owned before the marriage, it is considered separate property. This means that it belongs only to the person who came into the marriage with the property. If the property is inherited, it is considered separate property. The same is true if the property is a gift. For example, you might have a family member that gifts you a car. This would be considered separate property.

Keep in mind that title doesn’t matter. If you are married, and you go out and buy a car, it doesn’t belong just to you despite you being the only one on the title. It belongs to the community.

The Character of the Property Doesn’t Change

If you buy a home before you get married, and you live in the home during the marriage for several years, the house does not become community property. This is true even if you pay the mortgage using community funds. It stays a separate asset. The only way that this might change would be if the owner of the separate property “gifts” it to the other spouse. This might happen in cases where the home is refinanced or retitled, for example.

However, the community interest could develop an equitable lien on this type of property. A community lien means that the community invested in the property. In the previous example of a couple that has a home considered separate property, but the community paid for part of the mortgage or increased the value of the home, there is an investment on their part.

The value of the lien will have to be calculated to determine just how much interest the other person has in the home. Often, one spouse will have to use data and facts they and their attorneys gather to determine how much should be considered community assets and how much should be separate. There are no strict, hard and fast rules that apply to determining the value. This is where the lawyers can help. A divorce attorney can argue on the behalf of their client. Naturally, those who believe it to be their separate property want the community interest to be lower and vice versa.

When it comes to what happens with a business in a divorce, it can be just as tricky, even when the business might be considered separate. Determining how much of the growth of the business was due to the influence of the community can be hard to determine and quantify. Again, this is where attorneys can help. They have to determine how much the business was worth when the couple was married, how much it grew, and what each party did to grow the business. As you can imagine, this is difficult for many types of businesses.

It’s important to keep in mind that the same concept could be applied to anything that might be considered an asset in the marriage. This includes the house, stocks, trust, and property of any sort. This could increase the amount of time it takes to get through the divorce, and it could mean that you are at the risk of losing more than you may have thought.

The Importance of a Prenuptial Agreement to Help Protect Assets

Many of these types of problems could be alleviated by getting a prenuptial agreement before getting married. However, many people—even when they are bringing in separate property into a marriage—do not bother getting a prenup. Lack of planning and no agreement could be big mistakes, as it can complicate the divorce substantially. It might also mean that you lose a lot of your money and other assets in the divorce.

If you don’t have a prenup, there are still some ways that you can protect your assets. You might want to consider a postnuptial agreement, for example. This might be tricky to talk about with a spouse, but it’s well worth your time and effort, as it has the potential to protect both of you.

Another option to consider before getting married might be to put funds or property into an irrevocable trust that you don’t control. Since you don’t control it and it isn’t in your name, then it would not be considered community property. A limited partnership might also be put into an irrevocable trust.

Talk with an Attorney

If you are worried about the property that you have and what could happen to it during a divorce, you should get in touch with an attorney. A family law attorney can let you know what you can and can’t do with property, what is considered community property and separate property, help with prenup and postnuptial agreements, and more.

Rather than waiting to see what happens or hoping that you are one of the lucky few that ends up not divorcing, it’s best to talk with an attorney as early as possible. If you don’t have a plan in place, you could end up losing far more than you anticipate in a divorce.


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