Arizona’s divorce law requires a “fair and equitable distribution of marital assets between both spouses. Typically, this includes all accounts, real estate property, vehicles, and household items acquired during the marriage. But what if one spouse has a professional practice, such as a medical, legal, or accounting firm? How does Arizona’s rule of equitable division apply to professional practices during a divorce?
At Wilson-Goodman Law Group, PLLC, our Chandler high-asset divorce attorneys help professionals protect their businesses, financial interests, and long-term earning potential during complex Arizona divorce proceedings.
Under Arizona 25-211, the law states:
“All property acquired by either husband or wife during the marriage is the community property of the husband and wife …”
The law also states that separate property refers to any property owned before the marriage, property acquired by gift or inheritance, and any asset acquired by one spouse after the separation. Whether a spouse’s professional practice is considered divisible marital property depends on when the spouse began their practice.
Arizona’s divorce law considers when and how a spouse acquired an asset as the key to determining if it is community property and subject to equal division during the divorce. If one spouse began their professional practice during the marriage, it’s considered community property, just as all other marital income and assets. In this case, the asset is subject to equal division unless protected by a well-executed and enforceable prenuptial or postnuptial agreement.
If one spouse began a professional practice before their marriage, the other spouse may still have the right to claim half of the asset’s increase in value over the years of their marriage, especially if the other spouse supported the practice through time, talent, or monetary investment, or cared for the home and children, allowing the professional spouse to focus on building the value of their practice.
The best way to protect any asset from becoming community property during marriage is to have a legally enforceable prenuptial or postnuptial agreement in place that designates the asset as separate and not subject to division in a divorce. Both parties must agree to the terms of the prenuptial agreement and sign it willingly, under the guidance of their attorneys, before the marriage.
If divorcing spouses do not have a prenuptial or postnuptial agreement in place to protect a professional practice from division, the professional spouse can protect the asset during the marriage by preventing comingling. For instance, by keeping the professional accounts separate and not using the income from the profession for a shared mortgage or household expenses.
Finally, if the practice is marital property or became marital property through commingling, the professional spouse may buy out the other spouse’s share of the asset or trade it for another marital asset of equal value during the divorce, for instance, for the family home or a retirement account. The first step in this process is to obtain an accurate valuation of the practice.
Obtaining a full picture of the value of a professional practice is the first step toward protecting the practice during a divorce in Arizona. This quickly becomes legally complex, as a key aspect of any professional practice is the intangible “goodwill” that the professional builds through their reputation within their profession.
There are several methods of valuing professional practices that can yield very different outcomes depending on how they account for goodwill and other aspects of the practice. It’s crucial to have professional legal representation from a Chandler divorce lawyer experienced in protecting a divorcing spouse’s professional practice.
At Wilson-Goodman Law Group, PLLC, we represent business owners, physicians, attorneys, executives, and other professionals throughout Chandler and the surrounding Arizona communities in high-asset divorce matters involving professional practices and complex property division.
