If you’ve worked hard to build equity in your business, facing a divorce in Arizona can raise complex questions about how that business will be treated under the law. Many business-owning spouses consult a Chandler divorce lawyer or Chandler family law attorney to protect their equity and navigate the division of assets fairly.
Under Arizona 25-211, the law states the following:
“All property acquired by either husband or wife during the marriage is the community property of the husband and wife, except for property that is acquired by gift, devise, or descent, or acquired after service of a petition for dissolution of marriage, legal separation, or annulment…”
Arizona’s community property divorce laws aim for a 50/50 split of marital property while allowing some discretion as long as the split is “fair and equitable.” A spouse may retain separate property that belonged solely to them before the marriage or that they received as a gift or inheritance during the marriage as described above.
If you began your business before the marriage, or inherited it during the marriage, and kept it from becoming comingled property, you may retain the equity you’ve built in your business without splitting with your spouse during an Arizona divorce because it remains separate property.
Commingling separate assets is a common occurrence during marriage and happens when spouses do not protect their separate property through a prenuptial or post-nuptial agreement or by taking other preventative measures. A separate asset, such as a business begun before the marriage, becomes commingled with a spouse’s assets if the non-business owning spouse contributes time, talent, or money to improve the business’s value, or if one spouse has access to the other spouse’s business accounts. If your spouse worked in your business or contributed to it through time or talent, they are entitled to half of the business’s improved value since the marriage or since the time of commingling.
Dividing business equity in a divorce in Arizona begins with the discovery process of the divorce through a valuation of the business to get the full picture of its net worth, including the equity that has built. Then, the following options are allowable for dividing business equity:
Depending on your ability to communicate and compromise effectively, you could also choose to share the business with your ex-spouse until one of you has the funds to buy the other out, until liquidation, or indefinitely.
When deciding how to divide business equity, it’s important to consider your options for a settlement agreement to avoid a contested divorce. Through negotiation meetings and mediation with a neutral third party, divorcing spouses in Arizona may agree on a fair division of their assets, including business equity, that works for them and meets the court’s fairness and equity requirements, even if it is not a strict 50/50 division.
When spouses create a settlement agreement, a judge almost always signs it as a binding order, unless they suspect coercion or duress, or if the agreement is egregiously unfair to one spouse. If divorcing spouses are unable to reach a settlement agreement, the case becomes a contested divorce, with both spouses presenting arguments to the judge, who makes the final decision, including the division of business equity, and signs it as a binding divorce order.
