Before property can be divided in the divorce, the parties must designate all of the their assets and debts as either community property or separate property. Only community property is divided. The best place to start is to establish how, when, and where each asset was acquired. Doing so will tell you whether the property is yours, the other party’s, or shared property that must be equitably divided. Simple so far, right? Yes, simple, but not all non-marital property remains separate.
How do you designate an asset that started as one party’s separate property, but was so commingled during the marriage that it lost its characteristic independence? The answer lies in the rules of transmutation of separate property.
What Is Transmutation?
Transmuting property is changing that asset’s prior designation, which results in a change of legal ownership. The separate property of one party may be transmuted into the marital property of both spouses upon the occurrence of certain events.
What Transmutation Clues Should You Look for?
In your do-it-yourself divorce, you need to examine all of your assets and debts carefully and determine whether ownerships has changed since the item was first acquired. In Arizona, separate property transmutes into marital property in three distinctive ways:
1. By Gift. The owning spouse gifts it to the community. When one party owns a home prior to the marriage, for example, and later conveys the residence to both spouses as joint tenants, then this act is presumed to be a gift of separate property to the community. (This legal presumption of a gift, however, is rebuttable with clear and convincing evidence.)
2. By Agreement. Both spouses may agree between themselves that an asset that was separate property is now marital property, and vice versa. In other words, they may agree that their car is now her car; or that his bank account is now their bank account. As long as the agreement is voluntary and consensual, both parties will be held to it.
3. By Commingling. This occurs when one spouse’s separate property was so extensively mixed with the couple’s marital property that it completely lost its separate identity. One party’s funded bank account before the marriage may have been used by both spouses for years during the marriage, with deposits and withdrawals carried out by both. Commingling occurs often in marriages of long duration, although that is certainly not an absolute.
Designating an asset or obligation as either the separate property of one spouse, or the community of both spouses, can be quite complex. And depending upon the type of property at issue, quite confusing, such as a family business that started out as one party’s sole operation. If you have any misgivings about the characterization of a particular asset or debt in your divorce, spend a little money and get an opinion from an experienced Arizona divorce attorney before you agree to a property division. The cost is worth the price of certainty and peace of mind.