Arizona community property: what it means when you buy a home

What counts as community property and what counts as separate?

Arizona starts from a presumption of sharing. Under A.R.S. § 25-211(A), all property acquired by either spouse during the marriage is community property, with two exceptions:

1. Property acquired by gift, devise or descent (a gift or inheritance).
2. Property acquired after service of a petition for dissolution of marriage, legal separation or annulment, if the petition ends in a decree.

Separate property is what a spouse owned before the marriage, plus gifts and inheritances received during it, and the increase, rents, issues and profits of that property (§ 25-213(A)). IRS Publication 555 confirms that in Arizona, income from separate property is separate income.

For a home, this has a practical meaning. A house bought during the marriage with wages is community property, even if only one spouse’s name appears on the deed. A house one spouse owned before the wedding stays separate; a family-law attorney can say how community mortgage payments change that.

Spouses who move to Arizona are covered too. Marital rights in property acquired in Arizona during the marriage are controlled by Arizona law, even if the couple married elsewhere (§ 25-217).

Do both spouses have to sign when you sell or borrow?

Yes. Each spouse alone can manage community property, with exceptions. Under A.R.S. § 25-214(C), joinder of both spouses is required for:

• any transaction to acquire, dispose of or encumber an interest in real property, other than an unpatented mining claim or a lease of less than one year;
• any guaranty, indemnity or suretyship.

So a sale, a mortgage, a refinance or a home equity loan on community real estate needs both signatures. Separate property is different: each spouse has sole management and disposition rights over it (§ 25-214(A)). If you are buying from a married seller, ask who owns the property and whether the other spouse will sign. See also closing costs in Arizona and title insurance.

On debts, a community debt is paid first from community property and second from the separate property of the spouse who signed (§ 25-215(D)). One spouse’s separate property is not liable for the other’s separate debts unless the owner agrees (§ 25-215(A)).

How can spouses hold title?

Arizona law (A.R.S. § 33-431) treats spouses differently from other co-owners. Most grants to two or more people create a tenancy in common, but a grant to a husband and wife is an exception to that default. Spouses can add survivorship in writing.

A community property with right of survivorship estate can also be created by a transfer from a husband and wife to themselves, or from one spouse to both (§ 33-431(C)). Either spouse can end the survivorship right by recording an affidavit terminating right of survivorship in the county recorder’s office, with the details the statute lists. Recording it does not end the community interest of either spouse (§ 33-431(D)). The right also ends as provided in § 14-2804.

What happens in a divorce?

In a divorce, annulment or legal separation, the court assigns each spouse’s separate property to that spouse. It then divides the community property and other jointly held property equitably, though not necessarily in kind, without regard to marital misconduct (A.R.S. § 25-318(A)). Equitable does not always mean a 50/50 split. Property acquired outside Arizona is treated as community property for this purpose if it would have been community property had it been acquired in Arizona.

Other points that matter for a home:

• The court can impress a lien on either spouse’s property to secure what the other is owed, including an equalizing payment (§ 25-318(E)).
• Property the decree does not mention is held by the spouses as tenants in common, each with an undivided one-half interest (§ 25-318(D)).
• A decree assigning a mortgage to one spouse does not bind the lender. Arizona law states that a court order is binding on the spouses only and does not necessarily relieve either of responsibility for community debts (§ 25-318(H)). A lender release requires a written, notarized acknowledgment signed by all parties to the debt, including the lender, which must be recorded in the county where the property sits (§ 25-318(M)-(N)).

What happens when a spouse dies?

When a spouse dies, the spouse’s separate property and half of the community property pass under the will, or to heirs if there is no will (A.R.S. § 14-3101). The surviving spouse’s share stays subject to administration until the time to present creditor claims has run.

Without a will, the surviving spouse takes the entire intestate estate if all the decedent’s children are also the surviving spouse’s children. If any child is not the surviving spouse’s, the spouse takes one-half of the decedent’s separate property and no interest in the decedent’s half of the community property (§ 14-2102). Community property with right of survivorship avoids that outcome for the home, because the estate vests in the survivor.

How are community property homes taxed on the federal side?

IRS Publication 555 says that when a spouse dies, the entire fair market value of the community property, including the survivor’s half, generally becomes its new tax basis, provided at least half of the value is includible in the deceased spouse’s gross estate. In the IRS’s example, community property with a basis of $80,000 was worth $100,000 at death, so the basis of the whole property became $100,000. A lower basis means a larger taxable gain when the home is sold; see the guide to capital gains on a home sale. The same publication says the “community property” elections under Alaska, Tennessee and South Dakota law are outside its scope; the Arizona statutes I read contain no comparable community property trust.