What Happens When You Find Your House Before Your Spouse?

Protecting Your Separate Assets under a Community Property Jurisdiction

By Melissa Ward Goldenberg

Today, more and more women are in the position of owning the perfect piece of real estate before they find the perfect spouse. What happens to this real estate once Mr. Right has been found is an issue that needs to be addressed by anyone planning to commit to real estate or a life partner. If you are in a position of owning significant assets prior to marriage, it may be beneficial to consider keeping those assets separate from the marital assets, as Arizona is one of only nine states labeled as community property states. Whether or not property is deemed separate or part of the community is an issue not only in case of divorce, but also upon death or if there are children prior to marriage. Community property addresses all types of property including real estate, autos, furniture, etc. However, based on real estate’s financial impact, this article focuses on real estate as the example of how community property is treated in Arizona.

Under the community property theory, upon marriage, each spouse owns an undivided and indivisible half of the community property. This begs the question, “What exactly is community property, and why does it matter?”

Community Property
Generally, in Arizona, all property acquired by either the husband or the wife during the marriage, except for those items which are specifically identified as separate property, is community property. In other words, there is the presumption that any property acquired during the marriage is community property.

Separate Property
In contrast, any property which is acquired prior to marriage or is acquired during marriage by gift, inheritance, or with separate property funds is deemed the separate property of that spouse. This also includes any rents or profits that are received from the separate property.

Mixed Property
Many times, an issue arises as to property which cannot simply be classified as separate or community because the property has changed or because community funds have been used to pay for or improve the property. In one instance, separate property can be converted into community property by an agreement between the spouses (i.e. prenuptial agreement or separate property agreement), by gift, or unintentionally by commingling the separate property with community property. Often times, without knowing, a couple will commingle separate property with community property by opening a joint bank account for money used to pay for separate property or money earned from separate property. Once the funds are commingled, they are deemed community property and any desire to subsequently re-characterize the funds as separate will require the spouse to specifically trace the funds back to the original separate property, which after time can be very difficult.

In another instance, separate property can be partly converted into community property such as when the new spouse moves into a house previously purchased by one spouse prior to marriage. Often, the couple will pay mortgage payments and make home improvements and repairs from community funds (i.e. joint checking account). Making such payments may not make the house entirely community property, because if the house was originally separate property it may remain so. However, the non-owning spouse may be entitled to his or her share of appreciation of the property and reimbursement for half of the community funds used for the mortgage payments, repairs and home improvements.

What Can You Do?
If you own significant assets, including but not limited to real estate, prior to marriage classifying your assets is extremely important. If you are concerned about keeping your property your own, there are certainly some ways to protect your assets:

The couple can enter into a Prenuptial Agreement, which is entered into before marriage and can identify each piece of separate property that the parties intend to keep separate.

Pursuant to a Separate Property Agreement, a couple can agree, even after getting married, to designate certain property as separate; provided, however, this designation will only be effective if they follow the necessary steps to maintain the separate status.

Do not deed or convey any interest in the property to your spouse. If you would like to keep your property separate, do not add your spouse’s name to any deed for the house or mortgage loan documents.

Be careful when using community funds to make mortgage payments, improvements or repairs to the real estate. Doing so may entitle your spouse to partial reimbursement and to an interest in any appreciation.

In today’s society, many women must consider how best to protect the financial assets they have earned prior to marriage. Therefore, if you are in the situation where you have found your house before you found your spouse, it may be beneficial to take the necessary time to determine if you would like to keep these assets separate.