July 25, 2021
Family businesses are among the most complex assets that spouses (or family law judges) must divide in an Arizona divorce. Unlike cars, boats, and furniture, companies are living, breathing assets. Fortunately, there are a few ways for divorcing spouses to split up the family business in a divorce. To give a few examples, couples may decide to:
- Sell the property outright and split the proceeds. For a variety of reasons, both spouses may have no further interest in running the business after the divorce. The spouses might decide to split the proceeds evenly or enter into some other arrangement.
- Have one spouse buy out the other’s interests. If both spouses have ownership interests in the family business, one may decide to sell their portion based on an approved valuation (monetary value of the business). In other cases, one spouse might give up their ownership interests in exchange for other marital property.
- Keep operating the business as usual. It’s possible for a divorced couple to continue operating the family business, but it’s rare. Even the most amicable of divorces don’t usually result in the spouses’ wanting to spend much time together.
An Important Note on Community/Marital Property
Most people believe that spouses split marital property 50/50 in a divorce. That is actually not true for most states, but it generally is true in Arizona. That’s because Arizona is one of nine community property states. In community property states, marital property (most property gained by either spouse during the marriage) is presumed to be owned equally by both spouses. As a result, there is a presumption that marital property should be equally divided in a divorce.
It’s possible that family businesses may contain a combination of marital and separate property. Separate property is property gained by either spouse prior to marriage. There are some exceptions on both sides, however; inheritances or gifts bequeathed to either spouse during the marriage are usually designated as separate property. Conversely, property that was originally separate property may become marital property if both spouses contribute to it during the marriage. For instance, both spouses may deposit or withdraw funds from a bank account created by one spouse prior to the marriage.
Similarly, businesses created by one spouse prior to the marriage often become, in some aspects, marital property during the marriage. The other spouse often contributes labor to keep the business running. Sometimes, one spouse will take over a particular part of the business (like the bookkeeping) or even inject money (marital or separate) into the company.
How Do You Determine the Company’s Valuation?
There are a variety of valuation methods available. Divorcing spouses typically hire one or more financial experts to determine the monetary value of the business or parse through the separate and marital portions of the company.
Our firm has years of experience dealing with business valuation and associated legal matters; we also have a network of financial professionals who can help make your life easier as you try to decide what to do with the family business. If you’re looking for an experienced and caring attorney to guide you through your divorce, we’d love to speak with you soon. Call a family lawyer in Glendale at (623) 385-3190 to set up a consultation today.