Business owners who are considering divorce in Arizona have several concerns, not the least of which is the division of business assets. Determining whether a business is marital property subject to division, however, and how much each spouse should be awarded can become contentious. The best way to protect your rights is to consult a divorce attorney experienced in business division.
A Cohen Family Law, we help business owners navigate the complexities of divorce, knowing that a marital breakup should not mean losing their business. Nonetheless, the state’s community property laws dictate how marital assets are divided, which makes having the informed representation we provide essential.
When you consult with us, we will take the time to understand the nature of your business, explore ways to protect your business assets, and help you arrive at an equitable division of your marital property. Above all, we will always work in your best interests and help you make informed decisions about your business and your future.
Is a Business Considered Marital Property in Arizona?
The first thing to know is that only community property may be divided during divorce; each spouse gets to keep their own separate property. Therefore, whether a business is a marital asset subject to division in divorce depends on whether it is community property or separate property.
Generally, a business formed during the marriage is considered community property that may be divided. By contrast, a company created before the marriage is considered separate property, not subject to division. While this seems straightforward, determining whether and how to divide business assets is complicated.
How Is a Business Divided in an Arizona Divorce?
To arrive at a fair division of a business in divorce, the court will consider several factors, including:
- The value of the business — Our divorce attorney regularly collaborates with a respected network of appraisers to determine appropriate valuations and will work closely with you to collect necessary supporting evidence (e.g financial records, profit and loss statements, balance sheets, contracts, invoices, trademarks).
- The type of business — The business may have tangible assets such as equipment and real property, as well as goodwill (the value of long-term customers and technical expertise).
- Each spouse’s investment in the business — The degree to which each spouse contributed to the business in terms of both time and money.
- Business liabilities — Business debt and other liabilities (lawsuits, legal settlements) will reduce the value of the business.
- Other interests — The business may have other owners, partners, investors, or others with interests that weigh heavily in the division.
If the court determines the business is community property, it is unlikely that the business will be divided equally between the spouses. Instead, the spouse who started the business or made more contributions will likely be awarded a larger share. If the business was started before the marriage, the court will determine whether the other spouse has added value to arrive at each spouse’s equitable interest in the business.
What Is Buyout/Offset?
Ultimately, the practical consideration for a business owner in a divorce is whether to continue co-owning the business with an ex-spouse, particularly when the business is a going concern and selling it is not a viable option. Continuing as business partners requires having a productive working relationship, however, which may not be feasible after a divorce.
In this situation, there are basically two choices, buyout or offset:
- Buyout involves one spouse buying out the other spouse’s interest in the business, provided the buying spouse can arrange for financing or negotiate a structured buyout.
- Offset may be the most workable option, which involves one spouse giving all their business interests to the other spouse in exchange for other marital assets of similar value (e.g the marital home).
Given the complexities involved in a buyout or offset, not the least of which is determining the value of each spouse’s interest in the business, it is crucial to have proper legal representation. Working with an experienced Arizona divorce attorney can mean the difference between jeopardizing your life’s work and maintaining ownership of the business you worked so hard to build.
Prenuptial Agreement to Protect Business Owners
Business owners who are about to get married should consult with an attorney to put in place a prenuptial agreement, which will dictate what happens to the business in the event of divorce, particularly by outlining the terms of a buyout or offset. Similarly, a postmarital agreement allows couples who are already married to decide how a business, particularly a joint business, will be divided during divorce.
Contact Our Experience Arizona Business Division Divorce Attorneys
Because dividing a business during divorce can become complicated and contentious, it is wise to work with an experienced attorney. At Cohen Family Law, we leverage our legal knowledge and business acumen to provide our clients with trustworthy advice when they need it most. When you become our client, you will have confidence knowing that our experienced business division divorce attorneys are in your corner. Please contact our office today to set up a consultation.