When Arizona spouses divorce, the court divides the couple's marital property between them, including the family home. However, this property may be at risk if either or both spouses have outstanding debts. To protect their homes, some Arizona residents file for bankruptcy and claim Arizona's homestead exemption, which enables the filer to protect up to $150,000 of the property's equity. However, this protection from creditors does not extend to support obligations established by the divorce decree.
Division of Property
Arizona is a community property state. This means the court will divide marital property between divorcing spouses 50-50, or as equally as possible. When it comes to marital debt, the split may not be equal, since the court will seek to make an equitable division based on a variety of factors, such as each spouse's income and ability to pay and whether there has been any waste of marital assets. Generally, marital property and debt includes anything spouses acquire or owe during the marriage. On the other hand, separate property, is not divisible in divorce. Separate property is property that either spouse acquired before the marriage or during the marriage by inheritance or gift. If you are given the family home or other real estate in the divorce, the court will note this in the divorce decree, along with the marital debts assigned to each spouse, alimony awarded, if any, as well as child support and custody orders.
Sometimes spouses find themselves buried in debt after a divorce. To relieve this financial pressure, either or both spouses may file for bankruptcy. In a Chapter 7 bankruptcy, the debtor must give up all of his nonexempt assets to a bankruptcy trustee who then liquidates those assets to pay creditors. In a Chapter 13 bankruptcy, the debtor doesn't have to give up any assets, but enters into a repayment plan that lasts three to five years. If any debts remain unpaid at the conclusion of either bankruptcy, they are discharged and the debtor is no longer liable for them. Chapter 13 is a popular option among debtors who want to save their homes. If any marital debts assigned to you in the divorce are discharged through bankruptcy, the creditors may go after your ex-spouse for payment if her name was also on these debts, even if the decree assigned this responsibility to you. Therefore, filing for joint bankruptcy before the divorce is finalized may be an option so joint debts are discharged for both of you through the bankruptcy proceeding.
If you received the family home in the divorce but subsequently filed for a Chapter 7 bankruptcy, you can protect the home from seizure by using Arizona's homestead exemption. As if 2013, this exemption enables homeowners to protect up to $150,000 of their home's equity; however, homeowners can only use this to protect a person's residence, or "homestead." In other words, if you don't live on the property, you can't use the homestead exemption to protect it, and you can only apply the exemption to one property. Proceeds from the sale of a homestead are also protected from creditors for up to 18 months after the sale. Arizona's homestead exemption can also be used outside of bankruptcy. Under the law, $150,000 of your home's equity is protected from attachment, execution or forced sale by an unsecured creditor's claim, such as those that result from personal loans, injury lawsuits and credit cards. However, the homestead exemption will not protect your home against secured claims, like mortgages and tax liens. If you are unable to pay your debts, including marital debts assigned to you in the divorce, this exemption may help you keep your home.
Arizona's homestead exemption will not protect your home from support obligations that arise out of the divorce. This means that if the court ordered you to pay child or spousal support and you fail to do so, a lien can be placed on your home. In addition, if a contempt action is brought to collect past-due support, the court may consider your home's equity as a financial resource from which to collect the overdue support.