Interest Income From Inheritance During Divorce in Arizona

by Heather Frances J.D. Google
Arizona may allow you to keep interest income from your inheritance.

Arizona may allow you to keep interest income from your inheritance.

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If you received an inheritance before or during your marriage, you may be trying to keep it from being divided in your divorce. Depending on how you treated the inheritance and its income while you were married, the inheritance itself – and the income from it – may be considered either community property or separate property.

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Community Property Vs. Separate Property

Arizona considers all property you and your spouse acquired while you were married to be community property, which a court can divide in your divorce. Items considered “separate property” are exceptions to this general rule. Separate property includes inheritances -- even if acquired during marriage -- and property acquired after you file a petition for divorce or legal separation. If you lived in another state for part of your marriage, Arizona’s marital property division laws apply to that property as if you acquired it while you lived in Arizona, regardless of how the other state would have treated that property.

Mixing Separate and Marital Property

As separate property, your inheritance, along with income you receive from it, will generally not be divisible by the Arizona court in your divorce. However, your separate property can lose its special status if it became commingled with community property. Commingling happens when separate assets become mixed with marital assets to the point where the court cannot tell which is which. For example, if you combine your inheritance with community funds to buy a home, years later, after the home has increased or decreased in value and has needed repairs or improvements, it may be impossible for the court to determine that any share of the home is separate property.

Marital Agreements

Arizona law allows you and your spouse to make written marital agreements to characterize or divide your property, usually referred to as prenuptial or postnuptial agreements. You can use these agreements to specify which assets are to be considered your separate property, including your inheritance and any income from it. If you wished to change your separate property into community property, you could also use a marital agreement to make that change.

Presumption of Community Property

When Arizona courts start dividing property, they begin with a strong presumption that anything the spouses acquired during their marriage is community property, not separate property. As the spouse claiming that your inheritance is separate property, you have the burden of proof, meaning that it’s up to you to prove to the court that your inheritance is not community property. If you have not commingled your inheritance with community property or if you have a marital agreement, this may be easy to do. However, if you have mixed your inheritance and community property, such as by depositing it in a joint account, you may need to hire an expert to help you prove your case.