There is nothing easy about divorce. For couples considering divorce, two situations make this already-challenging decision even more difficult: having children together and divorce with a business involved. If you are a business owner, here are eight things you need to consider to protect your business during a divorce.
Note that this post provides a basic overview of what you can expect, but your case may differ greatly depending on the size of your business and other factors. For this reason, it’s always best to work with an attorney from the beginning of this process.
What happens if you own a business and get divorced in Arizona?
The first thing you need to consider in a divorce with a business involved is that Arizona is a community property state. Put simply, this means that any assets or income acquired during the marriage by either spouse is generally considered the property of the other spouse as well.
As per ARS § 25-211, there are exceptions. Property that may not be considered community property includes:
– A gift or inheritance
– Property acquired after a Petition for Dissolution of Marriage is served to the other spouse
– Separate property, as defined by ARS § 25-213
Because Arizona is a community property state, once one spouse serves the other with a petition for divorce, the law requires that each spouse protect the existing community property during the divorce process. This generally means that community property may not be altered, sold, or otherwise changed until the divorce is final.
For example, if the business has vehicles as assets, neither spouse may sell these vehicles after a petition is served. It’s as if time freezes once someone initiates divorce proceedings. Keep this in mind to start.
Is my Arizona business community property in a divorce?
To answer the question of whether or not your business is community property, you need to consider the following:
– When was the business started?
– What money was used to start the business?
– Who worked to grow the business?
Each situation is highly variable and complicated, though. A skilled business divorce attorney can help you know what to expect as you begin to divide your property.
Businesses started during the marriage
In general, if you started the business during the marriage with community assets (money or labor, for example), then the business will be considered community property.
This does not automatically mean that you will share ongoing 50/50 ownership with your former spouse. It can be complicated and the judge in your divorce will take the nature of the business’s value and assets into consideration as it divides community property.
Businesses started before the marriage or inherited
If you started your business before the marriage, or if you inherited it, some or all of the business may be considered the separate property of the spouse that acquired or started it.
However, if your spouse worked with you to grow the business, then the situation becomes more complicated. Your spouse then may have an equitable interest in the business. This type of interest is referred to as a community lien. Your spouse may not have started the business but may be entitled to some of the property because they helped it grow or contributed to its success.
How to value a business for divorce purposes in Arizona
Valuing a business for divorce is a complex process. To start, you’ll consider these five questions:
– Did you work in the business?
– Did your spouse work in the business?
– Even if the business was started prior to marriage, did it grow during your marriage?
– Was the growth from your efforts, your spouse’s efforts, or simply favorable market conditions?
– Was community money invested in the business?
Answering these questions begins the process of valuing a business for divorce, but that’s just the first step.
Determining the value of the business
The court will want to see a thorough evaluation of the business’s material assets and debts. This may includes all vehicles, buildings, and other goods or assets, as well as loans, contracts, and the like that the business owns or uses in its operations.
These are typically used to come up with a fair market value of your business. According to the IRS, fair market value is defined as:
“The price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
This fair market value may not be the only standard the judge takes into account, but it is one of the definitions used in valuing a business for divorce. For example, the fair market value may not be a realistic value for a variety of reasons. In these cases, a “fair value” method may be used that takes into consideration additional circumstances.
What if the business will continue?
Another consideration is whether or not the business is a “going concern.” That is, will the business continue to operate after the divorce is final? And, if so, is there a business partnership divorce occurring as well?
If both spouses are interested in maintaining their role in the business, this is also considered in a divorce with a business involved.
Get help from a business divorce attorney
As you can see, divorce with a business involved is no simple matter. To protect your business from divorce, it’s vital to get help from an experienced attorney. It’s important to work with someone who knows the ins and outs of business law and is also experienced with divorce cases.
At ARTEMiS Law Firm, we can help you understand your rights and responsibilities as a business owner going through a divorce. With extensive experience managing business law matters, as well as a dedicated family law team, we provide the advanced help you need for this complex situation.
Get in touch today to set up a consultation.