While it is relatively easy to find the basics of Arizona divorce law with a simple internet search, the basics simply aren’t enough for many people. Take business owners, for example. Their unique work circumstances present specific concerns that few, if any, online divorce law summaries will address directly. Furthermore, divorce law can vary significantly from state to state, so Arizona business owners will want to seek out information that is specific to that state.
How will your divorce affect your business and the various assets associated with that business? If you live in Arizona and have questions about business ownership and/or business division in divorce, you can find answers by reading on.
Business Owners Have Unique Concerns During a Divorce
The average business owner is certainly no stranger to stress, but the daunting complexities of divorce can be overwhelming for anyone. There’s no doubt about it: divorce is incredibly challenging. And adding a business into the equation makes matters even more complicated. Part of this complication arises from the fact that different states have different laws that affect different aspects of business ownership and divorce.
If you are going through a divorce in Arizona and own a business, you probably have some serious concerns about ownership rights, business valuation, and asset protection. Before diving into these details, however, it is important to realize that every divorce case is unique.
While some general information on the impact of divorce on business ownership can certainly be helpful, you will want to concentrate on the specific problems and solutions that relate to your particular situation. Therefore, it is highly advisable to reach out to a qualified legal professional like the team at the Shaw Law Group.
Answers to Common Questions About Business Ownership and Divorce
Over our 12 years of legal practice, the Shaw Law Group has heard nearly every question imaginable while guiding business owners and their spouses through the divorce process. What follows below are just a few of the most common. Although the answers to these questions can provide valuable insights into navigating divorce as a business owner, they are certainly no substitute for the in-depth legal advice that a lawyer can provide during a face-to-face consultation.
Q: How is a business divided during a divorce in Arizona?
A: Because Arizona is a community property state, all assets that a couple buys, creates, or otherwise acquires over the course of their marriage are considered join assets under the law. This means that both spouses own these assets together, and these assets must be divided evenly if the marriage is dissolved. Business assets are NOT exempt from community property law. So, in Arizona, any company formed or purchased during a marriage is likely treated as a joint asset shared by both spouses. Even if your spouse’s name appears nowhere on the official documents that relate to your business. However, there may be some exceptions to this general rule if you funded or bought your business with separate property. Arizona law also gets a bit complicated when a business owner facing divorce has a clear record of company ownership that predates the marriage and spousal relationship. To fully explore the exemptions and complications in Arizona’s community property law, all business owners should discuss the specific circumstances of their divorce case with an experienced attorney.
Q: Will my spouse get half of my business in a divorce?
A: Even if your business is deemed community property under the law, you don’t necessarily need to split that business evenly during a divorce. With the right negotiations and a reasonable spouse, you can emerge at the end of the divorce process with your business entirely intact and under your sole control. For example, you can agree to pay your spouse for the fair equity of your business as you continue to own and operate it. In some cases, couples can successfully run a business together in the wake of a divorce. But, due to the complexities of establishing effective co-ownership and determining fair equity, many couples choose to sell their jointly-held business to a third party as part of their divorce agreement.
Q: How is the value of a business determined in a divorce?
A: If you have tried Googling “business valuation divorce Arizona,” you have likely discovered that having your business valued during a divorce can be easy or quite complex. In some cases, business owners and their spouses can mutually agree on a business value without the help of a professional appraiser. However, a third-party expert can be indispensable when it comes to calculating a value for a business and resolving both existing and potential disputes over that value. To do so, they might use any combination of valuation methods, including asset calculations that measure existing capital against existing liabilities, income calculations that estimate future revenues, and market calculations that compare your business to similar businesses that have recently sold. If an independent third-party appraiser cannot settle the matter, you can bring the valuation process into the court system, ultimately allowing a judge to determine the value of your business. For these valuations, you will likely want the help of a professional appraiser who can deliver their professional opinions as courtroom testimony and give in-depth details about their specific valuation approaches and processes. Because business valuations can vary considerably from appraiser to appraiser, you will want to secure the assistance of a qualified divorce attorney before embarking on the appraisal process.
Q: How do pre-nuptial or post-nuptial agreements affect a business in divorce?
A: Pre-nuptial or post-nuptial agreements are designed to help couples by clearly defining which assets they own together and which assets should be considered separate property. The distinctions that these agreements draw can have a profound effect on business during a divorce. By establishing a company as the sole property of one spouse, these agreements can essentially protect a business owner from business division or fair equity payments to a spouse in the wake of a divorce, In short, a pre-nuptial or post-nuptial agreement can allow a business owner to maintain complete control over a company while avoiding legal or financial concessions. These documents are particularly important for closely held businesses with a limited number of shareholders. Beyond establishing clear lines of ownership, pre-nuptial and post-nuptial agreements can prevent disputes over the net worth of a company by establishing agreed-upon valuation processes.
Q: How do courts handle business debts in a divorce?
A: Arizona courts generally treat marital debts the same as marital property when dividing property during a divorce. So just as jointly-held business assets are considered the community property of married couples, so too are jointly-held business debts. This means that both divorced spouses may be held responsible for paying off business debts. In the court system, a judge will typically determine how to fairly divide this debt based on each spouse’s financial circumstances and business contributions.
Protecting Your Business from Divorce
In general, you can protect your business if you plan ahead, obtain a fair value for that business, and present your case with all the information required for the judge to make a favorable decision for you.
While we all know that an ounce of prevention is worth a pound of cure, few people want to think about protecting against a potential divorce while they are fostering a healthy relationship with a fiancée or a newlywed spouse. However, we have already discussed the indispensable role that a pre-nuptial or post-nuptial agreement can play in the treatment of business assets during a divorce. A well-structured buy-sell agreement and a well-documented business ownership structure can also protect these assets.
Furthermore, you can help safeguard your business against divorce by keeping clear and accurate financial records over the entire course of your marriage. This can help establish fair ownership and valuation when the unexpected occurs. One extremely important thing to keep in mind is ensuring that all personal and business finances are clearly separated. Commingling funds can significantly complicate matters in the event of a divorce, ultimately making it harder to determine the value of your business as it relates to your overall income.
Important Financial and Practical Considerations Regarding Business Ownership and Divorce
To determine company ownership and value during the divorce process, high-quality appraisers and legal professionals might team with any number of accountants and business experts and use industry tools that range from spreadsheet documents to financial projections. As previously mentioned, you can support fair and accurate business ownership and valuation assessments by establishing a clear ownership structure and filing relevant pre-nuptial, post-nuptial, and/or buy-sell agreements. You can also protect both business and personal assets by keeping them separate.
At the Shaw Law Group, we appreciate just how hard you have worked to build your successful business. We also know how stressful divorce can be. Over the past 12 years, many of our clients have come to us overwhelmed by running a business while navigating a divorce. Quite frankly, it can feel like juggling two full-time jobs.
Beyond answering your specific questions about business ownership and divorce, a qualified attorney can provide a clear roadmap to a satisfactory destination, making the entire divorce journey as smooth as possible. In short, you can ease your stress and move forward confidently with a good divorce attorney.
Legal Support to Protect What You’ve Built
If you are going through a divorce and you own a business, we are ready to do more than lend a hand. We can guide you through every step of the divorce process to optimize outcomes for you and your company.
For more information, examine the divorce practice at the Shaw Law Group. If you have specific questions about your situation, reach out to schedule a consultation. Bryan Shaw and the rest of the Shaw Law Group team will be happy to help you understand your legal rights and the best way to protect your business.
