By Melissa Myers and Michael J. Tucker, Oct. 9, 2014.
Melissa Myers: Are you sure that’s topical? This is a gay magazine.
Tucker: Well, the gays are out there getting married and Arizona is a community property state.
Myers: Community Property Law is generally not well understood, even by opposite-sex married couples.
Tucker: Community Property Law states that anything earned or acquired during a marriage by either spouse, other than by gift or inheritance, constitutes the community property of the marriage. Each spouse owns half.
Myers: Only certain states, mostly in the West, are community property states. Arizona’s laws evolved from Mexican law, which, in turn, came from the law of Spain.
Tucker: Arizona’s same-sex married couples are treated as married for most federal law purposes, but they’re still legal strangers to each other under Arizona law.
Myers: So Arizona’s law doesn’t apply to our married readers yet.
Tucker: Right. And the day Arizona law does recognize the validity of Arizona’s same-sex marriages, a lot of our readers are going to “wake up married.”
Myers: Couples who got married, say, back in Massachusetts in 2004 — long before such marriages involved any legal or financial consequences — might end up being more married than they wanted to be.
Tucker: The marriages of same-sex couples are already legal for purposes such as filing joint income tax returns with the IRS or being the automatic beneficiaries of each other’s 401(k) plans.
Myers: For now, in Arizona, each spouse’s income and earnings still belong to him or her alone. But, when Arizona community property law kicks in, the married couples’ paychecks and other earnings going forward will constitute community property.
Tucker: The LGBT community in Arizona hasn’t really had any reason to think about community property law until now.
Myers: If couples end up needing to get a divorce before Arizona law is changed to recognize their marriages, many will go to other states for those divorces. Community property law might be applied in those out-of-state divorces, as in California and New Mexico.
Tucker: California law explicitly allows same-sex couples who got married in California to go back to California for divorces, even though they are not California residents and never were.
Myers: So, what if couples want to get married, and they want to preserve the separate property character of some or all of their assets or their debts?
Tucker: Well, if they aren’t already married, they can negotiate and sign a prenuptial agreement to spell out what’s community and what’s separate. If they’re already married they can enter into a postnuptial agreement, or what I call a “partial separation of community property agreement,” to spell out their wishes.
Myers: Don’t those agreements also protect the couple from the claims of each other’s creditors?
Tucker: Often, yes. That may seem too good to be true, but it’s legal. Married couples can arrange their affairs so they’re not responsible for each other’s debts.
Myers: That could be pretty important if you were marrying someone with a lot of student loan or credit card debt, a tax lien or a lot of professional liability.
Tucker: You mean like obstetricians or lawyers?
Tucker: Yes, many couples can benefit greatly by agreeing to some changes in the default rules under Arizona’s community property law regime.
Myers: Getting married? Consult your professional advisers to learn how marriage can be tailored to fit your unique legal and financial circumstances.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.