Arizona is one of nine community property states in the U.S. This means that most property acquired during marriage is considered community property and is divided equally (50/50) between spouses in divorce.
Community Property includes:
Income earned by either spouse during marriage
Property purchased with community funds
Retirement benefits accrued during marriage
Business interests acquired during marriage
Debts incurred during marriage for community purposes
Separate Property in Arizona
Separate property remains with the original owner and is not subject to division. This includes:
Property owned before marriage
Gifts received by one spouse
Inheritances received by one spouse
Property acquired after service of divorce papers
Property designated as separate in a valid prenuptial agreement
Important: Separate property can become community property through commingling or transmutation during the marriage.
Community Property vs. Separate Property
Community Property (Divided 50/50)
Income earned during marriage
Property purchased with marital funds
Retirement benefits accrued during marriage
Business interests acquired during marriage
Debts incurred for community benefit
Separate Property (Stays with Owner)
Assets owned before marriage
Gifts to one spouse only
Inheritances (even during marriage)
Property acquired after service of divorce
Items designated separate by prenup
Complex Property Division Issues
Some assets require special consideration and expert valuation:
Business Interests: Professional practices, partnerships, corporations
These statutes provide the legal foundation for all property division determinations in Arizona's community property system.
Cryptocurrency and Digital Assets in Arizona Divorce
Arizona courts treat cryptocurrency and digital assets as community property subject to equal division when acquired during marriage. These modern assets present unique disclosure, valuation, and division challenges:
Types of Digital Assets Subject to Division
Cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), and thousands of altcoins
Non-fungible tokens (NFTs): Digital art, collectibles, domain names
DeFi assets: Decentralized finance holdings, staking rewards, liquidity pool tokens
Crypto mining operations: Mining rigs, equipment, and ongoing mining rewards
Crypto wallets: Hot wallets, cold storage, hardware wallets
Hidden Assets and Forensic Accounting in Arizona Divorce
Arizona law imposes a strict duty to disclose all assets in divorce under A.R.S. § 25-318. Hiding assets is illegal and subject to severe penalties including criminal contempt and unfavorable property division.
Legal Duty to Disclose
Every Arizona divorce requires complete financial disclosure:
Affidavit of Financial Information: Mandatory sworn statement listing all assets, debts, income, and expenses
Supporting documentation: Bank statements, tax returns, pay stubs, investment statements
Continuing duty: Must update disclosures if circumstances change
Penalties for non-disclosure: Court sanctions, unfavorable property awards, contempt of court
Red Flags for Hidden Assets
Warning signs that warrant forensic investigation:
Lifestyle inconsistencies: Lavish spending without apparent income sources
Business owner red flags: Declining business income during divorce, unusual business expenses
Commingling, Tracing, and Proving Separate Property
Arizona law presumes all property acquired during marriage is community property. The burden is on the spouse claiming separate property to prove it by clear and convincing evidence through proper tracing.
What is Commingling?
Commingling occurs when separate and community property mix together, making them difficult or impossible to distinguish:
Bank account commingling: Depositing separate funds into joint accounts
Real property commingling: Using community funds to pay mortgage on separate property
Improvement commingling: Community labor/funds improving separate property
Refinancing commingling: Refinancing separate property during marriage
Legal Standard: Clear and Convincing Evidence
To claim property as separate, you must prove:
Source of funds: Clear documentation showing separate property source
Continuous tracing: Unbroken chain from separate source to current asset
No commingling: Separate funds remained separate throughout
Intent to keep separate: Actions consistent with maintaining separate character
Tracing Methodology
Arizona courts apply strict tracing requirements based on case law:
Direct tracing: Clear paper trail from separate source to current asset
Explicit tracing: Specific identification of separate funds used
Inadequate tracing: General allegations without documentation fail
Burden never shifts: Person claiming separate property always has burden
When Tracing is Possible
Segregated accounts: Separate property kept in separate account in one name only
Clear documentation: Complete bank statements, title records, gift letters
Simple transactions: Direct deposit of inheritance, clear purchase with separate funds
Recent acquisitions: Shorter time period, fewer transactions to trace
When Tracing Becomes Impossible
Commingling can make tracing impossible, converting separate to community:
Joint account deposits: Separate funds deposited into joint account with regular withdrawals
Multiple transactions: Numerous deposits and withdrawals over years
Example 1: Inheritance of $50,000 deposited into separate account (only in recipient's name), account statements show no community deposits, used to buy investment property in recipient's name alone = SEPARATE PROPERTY
Example 2: Home owned before marriage worth $200,000, mortgage paid with community income during marriage, home now worth $400,000. Separate property = $200,000 (original value). Community property = mortgage principal paid + appreciation attributable to community contributions
Gift Presumption and Retitling
Adding spouse's name to separate property creates gift presumption:
Retitling as joint: Presumed gift to community unless clear evidence of different intent
Adding to deed: Adding spouse to real property title presumed transmutation
Joint accounts: Depositing separate funds into joint account may create gift
Rebutting presumption: Can rebut with evidence of different intent, but difficult
Documentation to Preserve Separate Character
Keep separate accounts: Never deposit separate funds into joint accounts
Maintain records: Keep all statements, title documents, gift letters, inheritance documents
Prenuptial agreements: Clearly designate property as separate
Avoid joint titling: Keep separate property in one name only
Track improvements: Document any community contributions to separate property
Community Lien on Separate Property
When community funds improve separate property:
Community lien: Community acquires lien for mortgage payments, improvements
Pro rata appreciation: Community entitled to proportionate share of appreciation
Calculation methods: Various formulas to calculate community interest
Military Retirement and Benefits Division in Arizona
Arizona is home to Luke Air Force Base, Davis-Monthan Air Force Base, and other military installations. Division of military retirement and benefits requires understanding both Arizona community property law and federal military law.
Uniformed Services Former Spouses Protection Act (USFSPA)
Federal law governs division of military retired pay under 10 U.S.C. § 1408:
State law determines division: Arizona community property rules apply
Direct payment available: Defense Finance and Accounting Service (DFAS) can pay former spouse directly
Maximum amount: Up to 50% of disposable retired pay can go to former spouse
Concurrent receipt: VA disability pay reduces divisible retirement amount
The 10/10 Rule for Direct Payment
Direct payment from DFAS requires:
10 years marriage: At least 10 years of marriage
10 years overlap: At least 10 years of marriage overlap with military service
If less than 10/10: Service member must pay former spouse directly (still divisible, just not direct DFAS payment)
Not eligibility rule: Military retirement divisible regardless of length of marriage, 10/10 only affects payment method
The 20/20/20 Rule for Military Benefits
Former spouses may retain military benefits under specific conditions:
20 years marriage
20 years creditable military service
20 years overlap between marriage and service
Benefits available: TRICARE health coverage, commissary/exchange privileges, some base privileges
The 20/20/15 Rule (Limited Benefits)
20 years marriage
20 years creditable service
15 years overlap
Limited TRICARE: One year of transitional health coverage only
Disposable Retired Pay Calculation
Only 'disposable retired pay' is divisible:
Gross retired pay: Base military retirement amount
Minus deductions: Subtract VA disability waiver, Survivor Benefit Plan premiums, retired pay used for child support
Equals disposable retired pay: Amount subject to division
VA Disability Pay vs. Retirement Pay
CRITICAL: VA disability compensation is NOT divisible as property:
Not marital property: VA disability is service member's separate property
Reduces divisible amount: If service member waives retirement to receive VA disability, reduces amount available to former spouse
CRDP and CRSC: Concurrent Retirement and Disability Pay (CRDP) and Combat-Related Special Compensation (CRSC) programs allow some concurrent receipt
May affect support: VA disability can be considered income for spousal support calculations
Thrift Savings Plan (TSP) Division
Military TSP is divided differently than military pension:
Requires court order: Similar to QDRO for civilian retirement
TSP-specific language: Must comply with TSP requirements
Tax-free transfer: Transfers incident to divorce are tax-free
Separate from pension: TSP and military pension are two separate assets
Survivor Benefit Plan (SBP)
SBP provides continuing income to survivors if service member dies:
Court can require SBP: Arizona courts can order service member to elect former spouse SBP coverage
Former spouse coverage: Special election to provide coverage to former spouse
Costs premiums: Reduces retired pay by premium amount (currently 6.5% of base amount)
Protect retirement division: Ensures former spouse receives retirement share even if service member dies
Election deadlines: Must be elected within one year of decree
Cost of Living Adjustments (COLA)
Military retirement includes annual COLA increases:
NDAA § 641 formula: Some courts use formula giving former spouse share of COLA
Fixed dollar vs. percentage: Award can be fixed dollar (no COLA share) or percentage (shares COLA)
Hypothetical awards: Can base on rank achieved, not just current rank
Reserve Retirement
Reserve and National Guard retirement has special considerations:
Gray area retirement: Reserves eligible at age 60 (or earlier with qualifying service)
Point system: Retirement based on points, not years of active service
Divisible when earned: Community property even before actually received
Primary residence exclusion: May exclude $250,000 gain if ownership and use tests met
Dividing exclusion: Considerations when one spouse keeps home
Refinancing: May trigger reassessment for property tax purposes
Investment property: 1031 exchange opportunities for investment real estate
Depreciation recapture: Prior depreciation deductions recaptured at sale
Equalizing Payments in Property Division
When equal division of assets isn't practical, Arizona courts use equalizing payments:
When Equalizing Payments Are Used
Indivisible assets: One spouse keeps home, business, or other asset that can't be split
Liquidity mismatch: One spouse receives more illiquid assets
Tax imbalance: Adjusting for different tax characteristics of assets
Valuation timing: Accounting for value changes between decree and transfer
Structuring Equalizing Payments
Lump sum: Single payment at time of divorce
Installment payments: Payments over time with interest
Property sale triggers: Payment due when asset is sold
Refinancing triggers: Payment due when home is refinanced
Security provisions: Liens or other security for promised payments
Interest on Deferred Payments
Arizona interest rate: Judgment interest at the lesser of 10% or prime rate plus 1% per year under A.R.S. § 44-1201
Negotiated rates: Parties can agree to different interest rate
Tax treatment: Interest may be taxable to recipient, deductible to payer
Present value: Future payments worth less than current cash
Division When One Spouse Keeps the Family Home
The family home often represents the largest marital asset and presents unique division challenges:
Buyout Options
Refinance buyout: Keeping spouse refinances to pay departing spouse's equity
Offset against other assets: Departing spouse receives other assets equal to home equity
Promissory note: Deferred payment with security interest in home
Combination: Partial cash buyout plus offset or promissory note
Continued Co-Ownership Arrangements
Sale date agreement: Defer sale until children finish school or specified time
Expense sharing: How mortgage, taxes, insurance, and repairs are allocated
Right to buy out: Options for purchasing other spouse's interest before sale
Appreciation/depreciation: How value changes are shared
Triggering events: Cohabitation, remarriage, or other events triggering sale
Removing Spouse from Mortgage
Refinancing requirement: Typically must refinance to remove departing spouse
Qualification issues: Keeping spouse must qualify independently
Timeline: Court typically orders refinancing within 6-12 months
Consequences of failure: If unable to refinance, home may need to be sold
Liability protection: Departing spouse remains liable until removed from mortgage
Maricopa County Property Division Resources
Maricopa County Superior Court provides resources for parties dividing property:
Self-Service Center
Location: Central Court Building, 201 W. Jefferson Street, Phoenix
Services: Form assistance, document preparation guidance, filing help
Property division worksheets: Forms for listing and valuing assets and debts
No legal advice: Staff cannot advise on division strategy
Required Financial Disclosures
Affidavit of Financial Information: Complete listing of assets, debts, income, expenses
Supporting documentation: Bank statements, tax returns, retirement statements
Timeline: Must be exchanged within 40 days of filing or response
Continuing duty: Must update if information changes
Valuation Resources
Real estate appraisals: Licensed appraisers for home valuation
Business valuation experts: CPAs and business appraisers for business interests
Retirement valuators: Actuaries for pension present value calculations
Personal property appraisers: Experts for jewelry, art, collectibles, vehicles
The Legal Process
Financial Disclosure
Both parties exchange mandatory disclosure statements listing all assets, debts, income, and expenses under ARFLP Rule 49.
Asset Identification and Tracing
Identify community vs. separate property. Trace assets requiring documentation of pre-marriage ownership, gifts, or inheritances.
Common Questions
How is property divided in an Arizona divorce?
Arizona is a community property state, meaning property acquired during marriage is typically divided equally (50/50). This includes income, real estate, retirement accounts, and debts. Separate property (owned before marriage, gifts, inheritances) generally remains with the original owner.
What is considered community property in Arizona?
Community property includes: income earned by either spouse during marriage, property purchased with community funds, retirement benefits accrued during marriage, business interests acquired during marriage, and debts incurred for community purposes. The key factor is acquisition during the marriage.
How do I prove property is separate in Arizona?
You must prove separate property by clear and convincing evidence through tracing. This requires documentation showing the source of funds (pre-marriage ownership, gift, or inheritance) and that the property wasn't commingled with community property. Keep separate accounts, maintain records, and avoid adding your spouse's name to separate property.
Anthony F. Paradise, Esq.
I didn't choose family law. I chose the courtroom.
The preparation. The argument. The moment when everything you've built either holds or falls apart. After earning my J.D. from Arizona Summit Law School, I clerked for a prominent criminal defense and wrongful death attorney. I learned how to build cases that hold up under pressure and how to perform when everything is on the line.
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