Arizona divorce laws state that marital property generally should be divided equitably between the spouses. However, determining how to achieve equity in the division of assets can be a complex process. There may be property, like a family home or pension, that one party wishes to keep in full. In simple terms, equalization payments in an Arizona divorce can be used to compensate the spouse who is not keeping such property for their share.

Marital Property Division and the Role of Equalization Payments in an Arizona Divorce

To understand how equalization payments can be used in marital property division, you must first know some basics about the Arizona divorce laws that govern how property is divided. We discuss that in this blog, as well as providing more details about what equalization payments are and the factors that are involved in determining if equalization is necessary and appropriate.

The Phoenix divorce attorneys at Frank Amar Matura help clients determine what property is included in the marital pot to be divided, assess the value of those assets, and identify options for the distribution of assets, including equalization payments when appropriate.

How Is Marital Property Divided in Arizona Divorces?

The Arizona Revised Statutes § 25-318 states that community marital property is to be divided “equitably, though not necessarily in kind.” This means that the process of dividing assets begins with the assumption that each spouse is entitled to roughly half of the couple’s shared property.

The first step in defining what property is to be equitably divided under Arizona divorce laws requires determining which assets are owned individually by one spouse and which are jointly owned—or community property. Property that was obtained by either spouse during the marriage is generally included in the marital pot for division. Property that is considered the separate property of one spouse remains with that spouse. This property can include the following:

• A gift or inheritance that was given to only one spouse;
• Property owned by one spouse before the marriage; and
• Property that is acquired after a petition for dissolution, legal separation, or annulment is served.

Once all community property of the marriage has been identified, valuation of that property is necessary to determine how it can be most equitably split. Some assets are easier to assign a value to than others. For example, bank and investment accounts have a clear face value. Homes can be appraised or assessed. If you own a business or intangible assets, however, valuation of these items may be more complex.

Once a value for all marital property is established, the parties, their attorneys, and the court can work to achieve equitable distribution of that property, which may or may not involve one spouse making an equalization payment or payments to the other.

What Is an Equalization Payment?

An equalization payment or payments can allow one spouse to retain all of an asset or assets, like a home or business while compensating the other for their share of that asset’s value and thereby maintaining an equal distribution of all property in the marital pot.

Equalization payments can take various forms. For example, if one spouse keeps the family home, the other partner could receive other assets from the marital estate that are relatively equal to half of the value of the home. This could mean the other spouse gets more or all of a bank or investment account if such assets exist. An equalization payment could also be made in lump sum from funds acquired by liquidating other assets.

Equalization payments can also be made over time. If an agreement to ongoing payments is made, these are made in regular installments, just as you would pay child support or spousal maintenance. However, there are differences between these types of support and equalization payments.

Equalization payments are considered part of the divorce settlement. Transactions that occur in the settlement process are not taxed as income, while spousal maintenance or child support might be.

It is important to evaluate tax consequences and other considerations when determining how marital property can be most equitably divided. The Internal Revenue Service (IRS) offers Publication 504 to help taxpayers understand the implications of property division in divorce.

A Phoenix divorce attorney at Frank Amar Matura can also help you evaluate tax implications in divorce, working to ensure you receive your share of the marital pot in a way that protects your future and best interests.

Contact a Phoenix Divorce Attorney to Discuss Equalization Payments in an Arizona Divorce

Valuation and equitable distribution of marital property in divorce can be a complex process. Legal guidance and representation by an attorney experienced in these matters can help ensure that your interests are protected. To discuss equalization payments in an Arizona divorce and get the legal counsel you need, contact the lawyers at Frank Amar Matura by calling 602-922-9989 or completing this online contact form.