Divorce is an emotionally and legally complex process. Dividing one home and family into two is never easy under Arizona’s equitable division of marital property laws, but what happens when divorcing spouses own businesses that are thrown into the community property law mix?
Business owners face unique challenges when it’s time to divide property, including the valuation of their businesses and categorizing one or more businesses as separate property belonging to one spouse alone or community property subject to fair and equitable division. Consulting with a knowledgeable Chandler family law attorney can help navigate these complexities and protect your business interests during a divorce.
In a community property divorce state like Arizona, divorcing spouses may keep their separate property but must fairly divide all assets and debts accumulated during the marriage. Under this law, even if the business is only in one spouse’s name, if they began the business during the marriage, the other spouse is entitled to half of the business’s overall value. Even if the spouse did not actively work at the business or invest time, talent, or money into the business, the law still considers the business as marital property. For example, if one spouse was a stay-at-home parent, the fact that they cared for the children and the home supported their spouse’s efforts in developing, running, and improving their business. Or if the other spouse worked full time, the law presumes that this helped provide for the home and family so the other spouse could focus on the business, entitling both spouses to an equal share.
If both spouses worked in the business, they are both entitled to half of the business regardless of which spouse worked more hours or invested more money.
Arizona’s divorce law allows spouses to keep any assets and property that belonged to them before the marriage. That said, a spouse may still have the right to claim a portion of a business’s value even if the other spouse owned the business before the marriage. Under Arizona’s divorce law, if one spouse worked in the other spouse’s business, invested money into the business, or spent their time and talent on improving the business, they are entitled to half of the improved value of the business.
Before divorcing business owners in Arizona can divide the value of a business, the business must first go through the valuation process to determine its full value. Then, one spouse may buy out the other spouse’s share or “trade” it for an asset of equal value during the divorce settlement process. If the spouses cannot reach a settlement agreement even after mediation attempts, the case becomes a contested divorce requiring a judge to review evidence and testimony from both sides before making a decision.
Before business owners can fairly and equitably divide their business during a divorce, it must undergo valuation. In most cases, each spouse uses a different valuation process. Unless the spouses part on good terms and divide their business amicably and fairly, there is often a substantial difference in the way each one values the business. Spouses may use the income approach for valuation, the asset approach, or the market-value approach. A spouse who doesn’t want the other to take their fair share of the business may use an approach that intentionally undervalues the business while the other spouse may use an approach that over-values the business so they can take a larger share of its value.
Dividing marital assets like real estate property, bank accounts, investment accounts, retirement accounts, cars, and household goods is often enough cause for contention in an Arizona divorce, but when spouses own one or more businesses that they’ve poured their hearts, time, talents, and attention into, it can quickly become heated. Call the Chandler divorce lawyers at Wilson-Goodman Law Group, PLLC so we can begin protecting your rights and safeguarding your best interests throughout all aspects of the divorce process, including child custody, child support, asset division, and spousal maintenance as well as business valuation and fair and equitable division.
