Transmutation of Sole and Separate Property

How can Arizona’s community property laws destroy my sole and separate property? Learn how to prevent transmutation of sole and separate property and plan for the future.

Arizona is a community property state. “Community property” is a term that  refers to how the property, during a marriage, is viewed in the eyes of the courts. In community property states all property accumulated by a husband and wife during their marriage becomes joint property. In plain terms, this means that all property belongs to both husband and wife equally if it was acquired during the marriage. Even if it was originally acquired in the name of only one partner.

Conversely, all property acquired before marriage, or through a gift or inheritance during marriage, is presumed to be the sole and separate property of the spouse who has acquired the property.  As with anything in law, there are exceptions, but this is the general rule.

The character of property as community or sole & separate can be important.  For example, if spouses divorce, each will retain his or her sole and separate property just as if they had never been married.  Any community property will be divided equitably. Equitably does not always mean equally. However, an “equitable” division of assets means a fair division.

To help preserve the distinction between sole & separate and community property, spouses will often enter into Ante-nuptial (after the marriage) or Pre-nuptial (before the marriage) contracts so that, they have the option of opting out of the community property laws our State adheres to. That way, in the event of a divorce, each spouse will keep the property he or she either brought to the marriage, or acquired under his or her sole & separate designation through the nuptial agreement during the marriage.

An agreement of this type is helpful and enables the individual to hold property separately from their spouse.  But care must still be taken during the course of a marriage to preserve the distinction between community property and sole & separate property.   Sole & Separate property can be transmuted, or turned into, community property through inadvertence or neglect.  Here are some of the more common ways that this can happen:

  1. Buying a home with sole & separate money (inheritance money or perhaps savings that were acquired prior to marriage) and taking title as joint tenants with right of survivorship or, worse, as community property with right of survivorship. The sole and separate property invested is now likely joint or community property simply because you put both names on the title;
  2. Transferring a home from your name to joint tenants;
  3. Commingling sole and separate funds with community funds by, for example, depositing funds into a joint account;
  4. Transferring sole and separate property to a Trust without taking care to preserve the character of this property as sole and separate. A trust should be created for your sole and separate and another trust should be created for community property to keep this division.

When contemplating the use of sole and separate funds or when a substantial gift or inheritance is received, it is prudent to speak with your attorney to learn how to protect these important assets from division and loss in the event of a dissolution of marriage, or when estate planning with a combined family.

The lawyers at Platt and Westby, P.C. have been practicing in the area of Family Law for over 40 years.  Contact any of our Phoenix Family Law lawyers at 602-277-4441 or use the e-mail contact utility on our website at  www.plattwestby.com  to schedule an initial conference concerning any matter involving Family Law, Pre-nuptial or Ante-nuptial contracts.  We will answer your questions and, where appropriate, suggest potential solutions.

Platt and Westby, P.C. has offices in Phoenix, Arrowhead, Avondale, Scottsdale and Gilbert, Arizona.