Membership Character

How a Married Couple Owns an Arizona LLC as Community Property

Married Arizona residents can own property as: (i) separate property, (ii) community property or (iii) community property with right of survivorship, sometimes referred to as “CPWROS.” Arizona law provides that if a married Arizona resident acquires property from any source, the property is automatically the community property (not community property with right of survivorship) of the couple unless the property was a gift or inherited property.

When a married Arizona resident acquires property from a gift or by inheriting the property that person owns the property as his or her separate property. Separate property also includes property of a spouse acquired before the marriage.  The non-owner spouse has no interest in or claim to his or her spouse’s separate property.

When property is owned as community property or community property with right of survivorship then each spouse owns an undivided one half of the property and if they divorce, each spouse is entitled to one half the value of  the property.

Community Property Does Not Transfer to Heirs Automatically

The only difference between community property and community property with right of survivorship is what happens to the interest of the first spouse to die. When an Arizona married couple owns property as community property and one of them dies, the interest of the deceased spouse in the property does not transfer automatically to the other spouse. The interest of the deceased spouse in the property goes to the heir(s) named in the deceased spouse’s will or trust, but if there is no will or trust then the interest of the deceased spouse passes according to the law of intestate succession of the deceased spouse’s state of resident at the time of death. A probate may be required to complete the transfer to the property heir(s) unless the value of the interest of the deceased Arizona resident is less than $75,000 for personal property and $100,000 for real property.

Community Property with Right of Survivorship Transfers to Spouse Automatically

When an Arizona couple owns property as community property with right of survivorship then if one spouse dies, the interest of the deceased spouse transfers automatically to the surviving spouse without the need for a probate. If a married Arizona couple wants the community property interest of a deceased spouse to pass automatically to the surviving spouse on the death of the first spouse they must own the property as community property with right of survivoship.

How to Own an Interest in an Arizona LLC as Community Property with Right of Survivorship

Warning:  If a married couple who are Arizona residents form an Arizona LLC or acquire a membership interest in an existing LLC they automatically own their interest in the LLC as community property, not community property with right of survivorship. If they want to own their interest in the LLC as community property with right of survivorship they must sign an Operating Agreement that expressly declares that the married couple holds their interest in the limited liability company as community property with right of survivorship.  See Arizona Revised Statutes Section 29-732.01.C.

When people hire me to form their Arizona LLC and tell me they want to own their interest in the LLC as community property with right of survivorship then we insert language in the LLC’s Operating Agreement hat expressly declares that the married couple holds their interest in the limited liability company as community property with right of survivorship.

For more on this important topic read my article called “Warning for Married Arizona Residents Who Own LLCs.”  This article also explains how married Arizona residents can insure they own their LLCs as community property with right of survivorship.

By |2017-05-30T22:03:17+00:00November 24th, 2016|General Information, Membership Character|