The 401(k) and Divorce Law in Arizona

By Andrine Redsteer

Community property states, such as Arizona, view assets acquired during a marital relationship as equally shared between spouses. Because Arizona is a community property state, family law courts generally distribute marital assets equally among spouses upon divorce. Property subject to division upon divorce includes real estate, bank account funds, personal property and retirement accounts such as a 401(k).

401(k) as Community Property

In Arizona, when one spouse opens a 401(k) after marriage, it's presumed to be the property of both spouses; thus, the funds in the 401(k) account will typically be divided equally between spouses during divorce. However, not all 401(k) funds are subject to equal division. For example, if a 401(k) account is started prior to marriage, the funds accrued in the account prior to the marriage are considered the separate property of the spouse who started the account.

Separate Property and 401(k)

Although Arizona recognizes community and separate property, separate property can be converted into community property under certain circumstances. For example, if separate property is commingled with marital assets, it may lose its separate nature and become the equal property of both spouses. Generally, funds deposited in a 401(k) prior to marriage are difficult to commingle with other marital assets. Thus, the premarital portion of a 401(k) account is typically considered the separate property of the spouse who earned it and not subject to division.

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Court Discretion

Although Arizona is a community property state, courts have discretion as to whether marital assets should be divided equally. Generally, the rule is to divide property in an equitable manner -- this doesn't necessarily result in a 50/50 split. For example, marital assets -- such as 401(k) funds -- may be divided unequally if one spouse had abnormal and excessive expenditures that resulted in waste or somehow attempted to conceal property to prevent it from being divided.

QDROs

An Arizona court will decide how to divide 401(k) funds based on whether the funds in the account were accrued entirely during marriage. If the court decides all funds in the 401(k) are community property, the court may issue a Qualified Domestic Relations Order to divide the funds. QDROs may involve an immediate distribution of the 401(k) funds or a subsequent distribution, depending on the preferences of the spouses. When a QDRO is issued, funds may be distributed without incurring penalties for early withdrawal.

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Is an Inheritance Received During Marriage Subject to Division?

References

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Divorce & Bank Accounts

Sharing of finances can be an important component to marriage. Using joint bank accounts can provide greater flexibility for paying expenses, as well as give the couple a feeling of interdependence. However, if the couple decides to get divorced, each spouse may attempt to claim ownership of money held in these accounts. Understanding the difficulties that courts typically encounter when attempting to classify bank accounts during property division, will help prepare you for your divorce.

Commingling of Funds Law

As part of the divorce process, the court must divide marital property between spouses. In many cases, this is a clear-cut process. However, in some marriages, the waters are a bit muddier, so deciding who gets what requires more work and investigation on the court's part. This typically happens when spouses have commingled their separate and marital property, especially money. Although state laws vary, divorce courts typically handle this situation in much the same way.

North Carolina Considerations in Separation of Assets During a Divorce

Property division is one of the most important issues a divorcing couple faces -- and sometimes one of the most contentious. North Carolina law provides guidelines for North Carolina courts to consider when dividing property, and spouses can reach their own property division agreements instead of asking a judge to decide for them.

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