A house is often the most significant piece of property involved a divorce case. Commonly, people ask whether they can keep the house in the divorce. The answer is, “it depends.”

Community Property Laws in Arizona:

Arizona is a community property state, which means that married couples share in the assets acquired during the marriage. During a divorce, courts equitably divide community property between the parties. Many different factors can influence what is “equitable,” but usually this works out to a roughly 50-50 split. Further, it generally does not matter if the property in question is titled only in one spouses’ name or jointly – if it meets the definition of “community property,” it is subject to division.

“Community property” refers to property that the law determined should be jointly owned by both spouses. With few exceptions, any property acquired during the marriage is community property, including property acquired in other states [1]. Yes, this includes property for which one spouse contributed more effort toward acquiring. Yes, this includes income earned by one spouse while the other was unemployed. Yes, this includes retirement accounts associated with the employment of one spouse’s job.

All other property is referred to as “separate property.” Separate property is generally limited to property that is unrelated to marital efforts, like inheritances, gifts, and disability payments [2], and to any property acquired after the petition for divorce. Separate property always stays entirely with its owner. But property acquired before the marriage can sometimes start as separate property and end as community property, or be segregated into separate and community aspects [3].

Are Houses Separate Property or Community Property?

The first step in determining whether you will keep the house is figuring out if it is community property or separate property. Here, unlike virtually all other property, whose name is on the title matters.

When someone purchases a house in their name alone, the house will be deemed separate property. This can be the case even if the house was bought during the marriage and community funds were used for the down payment. Once the house is titled in the name of one spouse, assuming there is corresponding evidence that the other spouse was disclaiming their interest (like a disclaimer or quit claim deed), it remains separate property. Though the house itself will be separate property, the community may be entitled to some equitable lien on the house due to monetary contributions made after the deeds were signed by the community to either pay down the principle on a mortgage or make improvements to the structure.

Conversely, consider a house that was owned prior to the marriage in one person’s name, but then had title transferred into the couple’s name as community property during the marriage. This change of ownership and title frequently happens with refinances. Once this occurs, the separate property interest is deemed gifted to the community, and 100% of the equity is presumed to be community property [4].

Properties purchased for business purposes may be treated slightly differently, such as properties bought to use as AirBnBs. First, the business, not the parties, may own the properties, which may create a different set of assumptions regarding property characterization. Second, if there is a separate property rental or commercial property, and the property is paid for solely from the rent it generates, there is likely little to no claim to a community property lien on the property (there would have been no community funds expended upon the separate property).

Keeping the House in a Divorce:

If the house is separate property, then the person who owns the house decides what to do. But he or she still may need to pay one-half of any community lien or reimbursement claim. Of course, the party could allow the other person to keep the separate property house, but that would be the result of negotiations rather than court orders.

If the house is deemed community property, then each spouse is entitled to half the equity. This leaves the parties with a few options:

If both parties want the house, then it is awarded to the spouse that is able to (1) remove the other party from the mortgage and (2) pay the other party half of the house’s value. But if both parties can satisfy those requirements, then they must sell the house and split the net equity.

If only one wants the house, then that party generally gets to keep it, subject to his or her ability to (1) pay out half the equity in the house to the other party and (2) refinance the mortgage to remove the other party’s name. Here, one of the bigger issues is determining the value of a buyout—each party likely secured their own, competing appraisal. The parties might stipulate that the house’s value is higher or lower than they think it is, or they might leave it for the court to determine. Additionally, because of the bank’s reluctance to release a party from liability, refinancing may be difficult.

If neither party wants the house, then the only option is selling it. The parties will work together to secure the best price and then each receive half of the equity, which is calculated as the fair market price received minus encumbrances (e.g. a $250,000 mortgage), realtor fees, and other costs of sale [5].

So once again, the short answer is, “it depends.” Each case is different, which leads to different litigation strategies and different settlement offers.

[1] A.R.S. § 25-211; A.R.S. § 25-318(A).

[2] A.R.S. § 25-211; Merrill v. Merrill, 230 Ariz. 369, 372 (Ct. App. 2012).

[3] After the petition for divorce is filed, all future property that is acquired is separate property for purposes of that marriage. Id. But what was originally separate property can become community property if the property was commingled during the marriage. See, e.g., Guthrie v. Guthrie, 73 Ariz. 423, 426 (1952).

[4] See, e.g., Blaine v. Blaine, 63 Ariz. 100, 110 (1945); Sommerfield v. Sommerfield, 121 Ariz. 575, 577 (1979); Noble v. Noble, 26 Ariz. App. 89, 93 (1976).

[5] The anticipated costs associated with the sale, such as realtor fees, are excluded from this calculation. Kohler v. Kohler, 211 Ariz. 106 (2005).

Leslie A. Satterlee is a partner at Woodnick Law and has been practicing family law exclusively since graduating cum laude from ASU’s Sandra Day O’Connor College of Law. Her practice involves complex asset driven divorce matters.

Sam Fraser is a 2l at Sandra Day O’Connor College of Law. As a law clerk at Woodnick Law PLLC, Sam has the opportunity to assist with real cases and to research areas of interest relating to his future practice of law.