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How separate properties can make asset division tougher

For Arizona couples who have done well financially, but who are about to go through divorce, some unpleasant news may await them. As one of just 10 states using the concept of community property, Arizona mandates that everything a couple owns at the time of their marriage ends is up for equal property division. Unless a valid legal agreement exists regarding what property was owned before marriage, all property holdings and financial assets can be divided.

As noted, agreements made before marriage can clarify what is considered separate property and thus will not be included in a divorce settlement. These agreements, however, are subject to scrutiny by the courts to ensure that both the spouses signed with full knowledge of the agreement and not while under duress. Property that is considered separate also can be converted to community property during the marriage. Earnings made during marriage also cannot be used to purchase properties that are then claimed as separate.

Separate properties must be properly documented to show they did not become marital property. Property documents, bank statements, tax returns, stock records and wills should be maintained as proof. If the asset's value increases because of the spouse's actions, however, the property may be considered to be community property. If something increases in value without any effort by its owner, the property will remain exempt from division.

If business owners did not enter into prenuptial agreements before marriage, they can still take steps to protect their interests. A signed postnuptial agreement that says a divorcing spouse cannot claim a share in the business can be entered into during the marriage. For ex-spouses who were business partners, one can buy out the other after the business's worth has been evaluated. If the property is managed by a trust, however, its division may be subject to court supervision.

Source: Forbes, "Getting Married? Got Assets? Read This First," Orrit Hershkovitz, January 30, 2015

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